FeaturedNationalVOLUME 17 ISSUE # 31

Bracing for more price surges

Prices have reached a record high in Pakistan and people brace themselves for more hikes after the Russia-Ukraine crisis continues and crude oil rates remain high. The inflation rate is set to increase further after the rupee has hit a record low against the Pakistani rupee. It will also put more pressure on the government which is already nervous about its future.

The government has raised fuel prices by up to 29pc, for the third time in 20 days. Prices of high-speed diesel, petrol, kerosene and light diesel oil have increased by a massive 83pc, 56pc, 73pc and 68.4pc, respectively, since May 26. The ex-depot price of petrol has reached Rs233.89 per litre, HSD Rs263.31, kerosene Rs211.43, and LDO Rs207.47. According to experts, fuel will become costlier and cross the Rs300/litre mark in the coming weeks as the government aims to withdraw all fuel subsidies. The government says the price hike was inevitable to save the country from default.

In another significant blow to the common people, the rupee continues to weaken against the US dollar and it recently plunged to a historic low of 210. The Pakistani currency is under immense pressure because of dwindling foreign reserves. The local currency has devalued by around 33pc (or Rs51) in one year.

The foreign exchange reserves held by the central bank decreased by 2.6pc on a weekly basis on June 16, according to data released by the State Bank of Pakistan. On June 10, the foreign currency reserves held by the SBP were recorded at $8,985.3 million, down $241 million compared with $9,226.2 million on June 3. Overall liquid foreign currency reserves of the country, including net reserves held by banks other than the SBP, stood at $14,943 million. Net reserves held by banks amounted to $5,957.7 million.

Foreign direct investment (FDI) in Pakistan also shrank by 29pc to $141.2 million in May as compared to $199.2 million in the same month of the last year. Cumulatively, in the first 11 months (July-May) of the last fiscal year, FDI inflows dropped by 5pc to $1.59 billion compared to $1.67 billion in the corresponding period of the previous year.

On the other hand, the country’s trade deficit has reached an all-time high in 11 months as imports outpaced exports. The trade deficit widened by 57.85pc during the first eleven months (July-May) of the last fiscal year. The deficit has reached $43.334b as compared to $27.452b during the same period of 2020-21, which is considered the highest ever deficit. The data shows the country’s exports had increased by 27.78pc as they reached $28.848 billion in the past 11 months as compared to $22.576 billion recorded during the same period of the fiscal year 2020-21. Similarly, imports also increased by 44.28pc during the eleven months (July-May) and stood at $72.182 billion compared to $50.028 billion during the same period of the corresponding year. The trade deficit widened by 11.5pc on a year-on-year basis, jumping from $3.626 billion in May 2021 to $4.043 billion in May 2022. Imports registered an increase of 25.43pc on a year-on-year basis and jumped from $5.297 billion in May 2021 to $6.644 billion in May 2022.

On the other hand, exports registered 55.66pc growth on a year-on-year basis and increased from $1.671 billion in May 2021 to $2.601 billion in May 2022. The trade deficit widened by 6.9pc on a month-on-month basis from $3.782 billion in April 2022 to $4.043 billion in May 2022. Imports decreased by 0.52pc on a month-on-month basis and remained $6.644b in May 2022, compared to $6.679 billion in April 2022.

Inflation, which hurts the common people more than anything else, has increased significantly in recent months. Prices were already the highest in Pakistan in the PTI government as compared to regional countries, according to the Asian Development Bank, and they are expected to break all records now after the government plans to withdraw all subsidies on fuel, electricity and gas.

As a result of recent measures, weekly inflation has reached a 14-year high during the week ended on June 16, as the sensitive price index (SPI) surged to 3.38pc on a week-on-week basis and 27.82pc on a year-on-year basis, according to the Pakistan Bureau of Statistics (PBS).

Fuel, electricity and gas price hikes do not come alone; they also increase rates of food and other necessities of life. Prices in the country fluctuate with a change in fuel prices, electricity tariff and the rupee rate against the dollar. Higher fuel prices will trigger another wave of inflation in the country. Pakistan’s import bill may swell and its current account deficit could widen further. It might also weaken the Pakistani rupee against the dollar.

The International Monetary Fund (IMF) has already warned Pakistan that inflation in the country is expected to pick up this year before gradually slowing down. Earlier, the Ministry of Finance hoped inflation might ease out in the coming months due to the declining commodity prices in the global market. In addition, relief may also come from continuous government efforts to soften food prices in the local markets by following appropriate fiscal and monetary policies. However, its projection proved wrong as prices continue to increase in Pakistan against all hopes and efforts. The government adds to inflation by increasing fuel prices every fortnight. A lack of coordination between federal and provincial governments also adds to the problem, which is compounded by the absence of local governments.