By Prof Dr Abdul Jabbar Khan
With an unprecedented price hike in the country, people of Pakistan face ever rising difficulties in their daily grocery, transport and paying utility bills. Even the bread has gone higher, to an unaffordable level besides many other combined with the food and household basket per family, it is estimated by a group of economics students working on the quality of life as well as cost of living, inflation and trend that has move in recent weeks.
Meanwhile the private sector in the country has gone on ‘shutter down’ strike, closing down their wholesale and retail business while hundreds of industrial units are also on closure.
The federal board of revenue chief, auditor cum accountant from Ferguson Chartered Accounting has not been able to assert, motivate or persuade businessmen across Pakistan. The traders action committee in Karachi, Lahore, Multan, Faisalabad, Rawalpindi/Islamabad, Sialkot, Gujranwala, Peshawar, Quetta, Hyderabad and all other major centres are on strike protesting against Prime Minister Imran Khan’s economic policies calling them as counter-productive, and a tax regime which is coercive and painful launched in the country.
The businessmen believe that the so=called schemes, assets declaration, additional GST, income tax. Even the edibles are under the net of enhanced taxes. Around 770 billion rupees tax revenue, an unprecedented target would result in great hue and cry among the low income segment of society. Surprisingly in the name of broadened base of tax payers, there are strong indicators that the budget measures incorporated in finance bill of 2019-20 may go under review. A big set back to the PTI chief who could not find indigenous team of economists and experts to manage Pakistan’s macro discipline.
With a 60 per cent poverty concentration or vulnerability to poverty population are quite susceptible to further poverty, relative to absolute to critical, says people who are well aware of the question of poverty line and its impact in terms of socio problems in society where the urban and rural crimes are reportedly on the rise. Street crimes, mainly due to unemployment, high inflation and very unacceptable prices are the major causative factors to street crimes and urban violence.
Inflation, cost of living move high
The media is also reporting in different terms about the fiscal measures failure and a constant change in the economic managers team. It is unbelievable that the finance ministers keeping on changing in PTI regime. Even the advisor Dr. Hafeez Shaikh feels threatened from MNA Hammad Azhar, a young scion of Mian Azhar family of Lahore.
The Pakistan Tehreek-e-Insaf (PTI) government has missed its annual target of inflation that surged to a five-year high at 7.3% in the last fiscal year due to upward revision in electricity and gas prices and 32% depreciation of the rupee in one year.
Against the annual target of 6%, the average inflation in fiscal year 2018-19 surged to 7.34%, reported the Pakistan Bureau of Statistics (PBS) on Tuesday. It was the highest average rate in the past five years. Previously in fiscal year 2013-14, the rate of inflation was 8.6%, the point from where it had started receding.
The rate of inflation was more than double the annual economic growth of 3.3% recorded in the last fiscal year 2018-19.
The government’s annual plan for the new fiscal year 2019-20 has cited that “upward adjustment in electricity and gas prices, input costs and impact of exchange rate movements” as the reasons behind missing the annual inflation target. In three months back period the inflation has to as high as 9.5 per cent and tending high from that level to an unprecedented hike in recent weeks.
After coming to power, the PTI government has increased the prices of gas and electricity twice – first time in anticipation of an IMF programme and second time as part of the IMF’s prior action to After coming to power, the PTI government has increased the prices of gas and electricity twice – first time in anticipation of an IMF programme and second time as part of the IMF’s prior action to qualify for a $6-billion loan package.
Higher discount/base rate, $-Rupee parity
In 2018-19, the central bank let the rupee depreciate against the US dollar by 31.8% to Rs160.3, which brought imported inflation into the country. On June 28, 2018, which was the last working day of fiscal year 2017-18, the rupee-dollar parity was at Rs121.63 to a dollar.
Owing to the currency devaluation, the government had to increase the price of petrol by 25% in one year. Many shops and a hospital in Lahore have pegged prices of their goods and services to the dollar, which, if remains unchecked, will further erode the confidence of people in the local currency.
For the new fiscal year, the government has set the inflation target in the range of 11% to 13%, according to the Ministry of Finance.
However, on a month-on-month basis, the rate of inflation remained below expectations. In June, the pace of increase in prices was 8.9% – 0.2 percentage point lower than the preceding month. It was also one percentage point lower than market expectations. Core inflation – non-food and non-energy price index – remained unchanged at 7.2% in June, reported by Pakistan Bureau of Statistics. The State Bank takes monetary policy decisions by keeping in view the year-on-year core inflation reading. It raised the key discount rate to 12.25% with effect from May 21. In next week the monetary policy announcement will reflect the future plan of the money supply and central bank narrative.
The decision to increase the discount rate undermined the independence of the central bank that apparently took the step in the wake of an IMF condition.
After the last discount-rate hike, the central bank has cumulatively increased the interest rate by 5.75% since July last year aimed at curtailing aggregate demand in the economy.
The core inflation-adjusted interest rate is now positive by 5%, which is providing windfall gains to the bankers who are minting money from the government as well as private-sector borrowers.
It has massively increased the debt servicing cost for the finance ministry. About 53% of the FBR’s tax collection will be spent on debt servicing. The IMF has long been pressing Pakistan to increase the interest rate to over 14% in order to curb inflation, which the fund believes will be in double digits due to currency devaluation and imposition of new taxes.
Due to the increase in the key policy rate, the government’s borrowing rates for the Pakistan Investment Bonds have also jumped. PBS data showed that on a year-on-year basis, gas prices increased 85.3%, petrol prices jumped nearly 25% and motor vehicles by 12.73% in June alone.
Transport group inflation increased 15% in June over a year ago, prices of perishable food items rose 11.8%, alcoholic beverages and tobacco 22%, housing, water, electricity, gas and fuel group 10% and health services 8.6%.
Inflation skyrocketed to a five-year high of 9.41% in March, throwing the country into an era of stagflation that Pakistan’s top economist said would throw four million more people into poverty and will leave one million more people without jobs this year.
The Pakistan Bureau of Statistics (PBS) reported on Monday that the pace of increase in prices of goods and services surged to 9.41% in March over a year ago. It was the highest level since April 2014 when the Consumer Price Index based inflation indicator had been recorded at 9.2%.
With inflation approaching double digits and economic growth rate slowing down to below 3%, the country is trapped into stagflation, said Dr Hafiz Pasha, Pakistan’s noted top economist. Stagflation is a situation where prices of goods and services constantly increase, rate of economic growth slows down and unemployment also increases.
Independent economists apprehend a “critical” scenario emerging at a faster pace, visibly unmanageable by the government that has put Pakistan on more borrowed money. The funds, aids, loans and deferred payment deal of POL import are all pressurising economic factors that would result in huge pressure, and ultimately the consumers facing double digit inflation, deteriorated condition of Pak Rupee, ever increasing pressure on rupee in future, return and repayment of debt and liability show that the scenario would become ugly, unbearable and facing to more corruption since the tax rates have been increased that are prone to avoidance and avoidance.
Business strikers believe that the protest will continue unless there is serious mood reflected by the government. Prime Minister Imran Ahmed’s meeting with the Karachi businessmen failed to woo them. On Saturday (July 13, 2019) it was thin vehicular traffic, main bazars and wholesale markets usually open during mid-day are found agitating and have expressed their mood, protesting against economic policy of PTI government.