The new government has increased fuel prices by an unprecedented Rs30/litre and a similar hike is expected in a couple of weeks, which will push diesel and petrol prices to over Rs200/litre. Under IMF conditions, the power tariff will also be hiked by Rs7/unit in a phased manner. Gas is also expected to become dearer by 40-50pc, while the tax collection target is being raised, which means the existing rate of taxes will be enhanced, if new taxes are not being imposed. It sums up that the people of Pakistan will face the toughest years of their lives and they would badly miss the last government, which had become highly unpopular after an unprecedented price hike in the country. The situation is expected to worsen beyond their imagination now.
There is no doubt that the coalition government had to accept the harsh conditions for the revival of the IMF package to support the national economy. When in opposition, the ruling parties contended the PTI government had accepted undue conditions of the IMF and they would abolish them after coming to power. They also announced that they would end the autonomy of the State Bank of Pakistan after coming to power. However, they have accepted even harsher conditions now. The last government had capped the power tariff and fuel prices until June 2022, when it saw its ouster through a no-confidence motion. However, the new government failed to take decisions timely and delayed hiking fuel prices, which compounded the situation. If it had increased their prices by Rs5/litre every fortnight, people would not have been overburdened so much and they would not have felt the pain so badly. As the government plans to increase their prices by another Rs30/litre, it should start hiking its rate by Rs5/litre every fortnight, so that people do not feel much pain. Many experts fear fuel prices could reach Rs250/litre in a few months. If it happens, it will really bring life in Pakistan to a halt.
The hike in fuel rates has already led to an increase in transport fares. Besides, prices of food and essentials have also skyrocketed. A day after the fuel price hike, the government jacked up the prices of flour at Utility Stores by 22.5pc. The price of a 20kg bag of flour increased by Rs180, and it is now selling at Rs980, while the price of a 10kg bag has increased by Rs90, and it is being sold for Rs490. Though inflation measured by the Sensitive Price Index (SPI) fell 0.26pc in the week ended May 26, owing to a drop in the prices of a few essential food items, prices are projected to increase sharply in the coming weeks. The inflation rate in April skyrocketed to 13.4% – the highest pace since January 2020. According to the Pakistan Bureau of Statistics, the inflation rate had accelerated due to a surge in the rates of food and transport commodity groups. The constant double-digit inflation in the country has eroded the people’s purchasing power and a recent report by the World Bank says that poor families have to spend half of their earnings on buying food. Average inflation during the first 10 months (July-April) remained in double digit and shot to over 11pc — far higher than the government’s target of 8pc and the initial projection made by the SBP. According to the Finance Ministry’s monthly economic update, the overall spike in the CPI is on account of an increase in the prices of imported items, as the country is a net importer of items, like crude oil, pulses and edible oil, which ultimately reflect in domestic prices. The Ukraine war, supply chain disruptions, and global demand recovery all contribute to price increases. It further said that high international commodity prices not only keep inflation elevated, but are also a burden on Pakistan’s external account and foreign exchange reserves.
On the other hand, the IMF has demanded that Pakistan set the next fiscal year’s tax collection target at Rs7.25 trillion, which will require the imposition of additional taxes of around Rs300 billion, including the withdrawal of agriculture tax exemptions and increase in the burden on the salaried class. The target is nearly Rs350 billion higher than what tax authorities believe can be generated in the fiscal year 2022-23, without imposing new taxes. The Rs7.25 trillion tax collection target will be Rs1.15 trillion, or 19pc, higher than this year’s revised target of Rs6.1 trillion.
According to the latest SBP report, “External pressures remain elevated and the inflation outlook has deteriorated due to both home-grown and international factors. Domestically, an expansionary fiscal stance this year, exacerbated by the recent energy subsidy package, has fueled demand and lingering policy uncertainty has compounded pressures on the exchange rate. Globally, inflation has intensified due to the Russia-Ukraine conflict and renewed supply disruptions caused by the new COVID wave in China. As a result, almost all central banks across the world are suddenly confronting multi-year high inflation and a challenging outlook.”
Though the rupee has started regaining after the government has accepted the IMF conditions, yet the local currency has already plunged to a historic low of Rs200 against the US dollar. Its fallout will also start reaching the common people in a few weeks. In fact, prices of cooking oil have gone up from Rs520/kg to Rs550/kg. According to the traders and distributors, their prices will massively increase in the coming weeks.
It is clear that rising commodity prices are an international phenomenon and the government is helpless before it. The last government was also criticized for price hike and when it cited international reasons, nobody would listen to it. In the situation, the government should tell the nation it is serious about solving the issues and lead by example by slashing its expenditure and perks.