Shock and awe

As an immediate outcome of the fuel price hike, inflation is spontaneously on the rise

The hike in the prices of petroleum products and energy tariff is toiling. It has literally compromised the purchasing power, as well as mobility, of the people at large. Though this unprecedented raise in oil and electricity was on the cards, the shocking application twice within a week has left all dump and dry. The shock and awe is squarely evident, and people are questioning — and rightly concerned — over their fate and lifestyle in days and weeks to come. The decision by the government to jack up the prices of petrol by another Rs30 per litre on Thursday night was a bolt from the blue, as the masses were hardly out of an earlier thunder. Likewise, upping the power tariff by Rs7.9 per unit on account of an increase in fuel prices and depreciation of the rupee has come as a complete devastation. This new expenditure critically undermines the home budget of not only the common man, but will also impact the entire economic circle as its spiraling effect will be felt across the board.

As an immediate outcome, inflation is spontaneously on the rise. It is showing its ugly face as demand and supply chain apparently stands ruptured. Moreover, the aftermath of dearness worldwide has pushed the price index of food staples, edible oil and pulses sky-high, and it is accustoming on a daily basis with the surge of the greenback. As of June 1, inflation has risen to a nearly two-and-a-half-year high at 13.76 per cent. This is coupled with a raise in interest rates at banks, as exports take a dip and imports are unnecessarily pinching. Efforts on the part of the government to ensure some tricky balance is yet to show results, and slumping forex reserves are pitching Pakistan in Sri Lanka’s footsteps. This untoward situation has to be deterred, and the return from the brink is only possible if immediate and corrective long-term measures are introduced. The macro-economic format as well as debt-servicing has to be rescheduled. This augers a new dialogue with the IMF and that too on changed realities. No point is revising or buffering up the existing deal, as that stands almost liquidated.

With petrol at Rs209.86 per litre and Rs24.82 per kilowatt hour (unit of electricity), the economy is in a fix. An out-of-the-box solution is the need of the hour. If the import of oil from Russia is possible — as the previous government claims — then the incumbents must seriously explore the option. Pakistan desperately needs energy avenues, and diverse forms of power dissemination are indispensable. Thus, in order to lessen the price of oil retail, taxes and levies as well as the margin of profit that refineries and logistics incur need to be reworked. The dismal situation, however, seems to be attaining a silver-lining as China and Saudi Arabia have reportedly agreed to refurbish the reserves by holding their capital to the extent of $3 billion each. This along with a new tranche of $1 billion from the IMF, and an extended programme, could set the circle of the economy roaming. What is desired is to lessen the burden of oil shock on the economy, and ensure that food prices are well within reach.

Published in The Express Tribune, June 4^th, 2022.

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