So there you are. The price bombs have started to fall. The first, as expected, was the “petrol bomb”, which took the price of petroleum products to a record high.
According to a press release issued by the Finance Division, petrol will now cost Rs272 per litre – seeing a hike of Rs22.20 – whereas high-speed diesel will be available for Rs280 – an increase of Rs17.20.
The justification the Finance Division is giving is that the price surge is a result of the devaluation of the Pakistani rupee whereas, in reality, the government is doing everything it can to convince the International Monetary Fund (IMF) to release the $1.2 billion instalment.
The Pakistani government desperately needs to shore up its reserves which have critically fallen to $2.9 billion, enough to meet just a few days of imports. It is hoped that with the release of the IMF tranche, inflows from friendly countries would also follow.
A couple of days back, the government consented to raise gas prices up to 113 per cent. Through this measure, it aims to recover Rs310 billion from consumers in six months.
The IMF delegation had left Pakistan after a 10-day stay without reaching an agreement for the disbursement of the $1.2 billion tranche, stating that further talks would be held virtually.
Before leaving, the delegation had handed the government the Memorandum of Economic and Financial Policies (MEFP) regarding the completion of the ninth review of the $7 billion loan programme, which Pakistan responded to and resumed virtual talks with the Fund.
Islamabad had agreed to enforce taxes amounting to Rs170 billion and reduce untargeted subsidies in gas and energy sectors, ensure that there is zero addition to the gas sector’s circular debt, increase petroleum development levy on diesel and raise allocation of the Benazir Income Support Programme to Rs400 billion from Rs360 billion.
To fulfil all these requirements, Finance Minister Ishaq Dar tabled a mini-budget to raise Rs170 billion.
The Finance (Supplementary) Bill 2023 was presented before both houses of the parliament after President Dr Arif Alvi advised Mr Dar to take the parliament into confidence to bring into effect new taxes. The government, on the other hand, was looking for a presidential ordinance to implement the taxes.
Under the bill, general sales tax (GST) will go up from 17 per cent to 18 per cent and even 25 per cent while federal excise duty (FED) will be imposed on cigarettes, sugar drinks, cement and air tickets.
Many economists, however, are not very optimistic about Pakistan’s economy and believe that there will be no major change in the situation even after the IMF deal has been struck. Former finance minister Miftah Ismail had said that the country would require another IMF programme.
And now, an economist associated with Moody’s Analytics has predicted that inflation would average around 33 per cent in the first half of 2023. She feared that the IMF loan alone was unlikely to put the economy back on track and that persistent and sound economic management was required.
So critical is our state of the economy that The Fitch rating agency has downgraded Pakistan’s long-term foreign-currency issuer default rating (IDC) to CCC- from CCC+. A CCC- rating signifies a high risk of default.
The country’s economy is in dire straits, but more than that it is the common man who is in dire straits. Under the present scenario, people have degraded to mere cannon fodder. With income unchanged and in some cases reduced, surviving in today’s Pakistan is becoming a Herculean task. It won’t be long before another exodus of migrant workers would take place in these pressing times.