A devastating hike

The economy is surely on the edges. Jacking up of petroleum prices by Rs35 per litre on Sunday has sent shocks all around. It is bound to have an adverse impact on inflation that is hovering over 35%, with the US dollar now unavailable even for Rs270. This is a moment of serious introspection as all claims of the coalition government to stabilise the economy, and provide relief to the masses have bitten dust. The ruling dispensation, nonetheless, seems either unmindful or is prepared for a disaster. It is blindly following the dictates of the international lenders hoping that it would ease the situation a few months down the line. What political capital it will cost is not hard to guess as the mood on the street is disgusting.

Following Sunday’s hike, petroleum and diesel will cost Rs249.80 and Rs262.80 per litre, respectively. This is simply untenable for the sake of a billion dollar loan from the IMF, as its high-powered team is due in the federal capital. The government’s endeavour to stay afloat and avoid an indispensable default are understandable, but the modus operandi is seriously under debate as such piecemeal gimmicks in the past have not led to desired results. The IMF’s major demands include: market-based exchange rate; increase in electricity and gas rates by about Rs7 per kw-hour and Rs750 per MMBtu respectively; raise in the prices of petroleum products with a hike in levy and imposition of sales tax; and additional taxes of Rs100 to Rs225 billion to make up for revenue slippages.

This is tantamount to a mini-budget, and taking into account periodic hikes all these months, the masses are literally in a crisis of their own. The government must reflect squarely as it deliberates with the Fund, and tell them frankly that lifting of the cap on the exchange rate has led to a hole in its coffers. Thus, it should not be singled out, if it starts dealing with multiple currencies. Pakistan cannot toe the lenders line all the way.

Published in The Express Tribune, January 30^th, 2023.

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