Hand-to-mouth existence

LAHORE: Businesses are worried about further increase in the central bank’s policy rates, the common man is expecting an increase in petroleum rates, and housewives are shuddering at the prospect of exponential hike in the rates of essential items.

All these measures are inevitable. The policy rates would be jacked up to check continued decline in rupee value and regular hike in inflation. Impact of inflation would be on the rates of all essential daily use items. High petroleum rates would add further to the transportation cost of goods, including daily use commodities.

The weakened rupee would play havoc with imported items as most are subjected to high duties and sales tax on duty paid value. Curbing imports would stifle growth as it did in 2019. Higher interest rates would increase the cost of borrowing of the private sector as well as the government that is the largest borrower in the country.

The economy is all messed up. Citizens suffered badly when this government stifled trade in the name of stabilisation, they were almost resource less when Covid-19 hit the country at the end of that year.

Production in many sectors declined to almost zero including that of automobiles. The resource less government provided numerous incentives to businesses to keep them afloat. Most of the money came from the International Monetary Fund (IMF) and the debt relief that many economies provided to the country. It was borrowed money that had to be paid back.

Enterprises were offered subsidised loans to pay salaries to workers, for which the government did not come up with any criteria. Even those companies that were sitting on huge reserves were provided highly subsidised loans. In fact, most of these subsidised loans went to large enterprises.

Hardly a few medium-sized enterprises could avail this facility as the procedure was very cumbersome. Small enterprises could not obtain the subsidised loans and were forced to relieve their workers.

When the state coffers were almost dry, the IMF came up with another relief package (loan) of over $2.5 billion that provided it some breathing space.

During this period, our government neglected the conditions put in place by the IMF for $6 billion loan sanction. After Covid-19, the quarterly IMF tranches remained stalled as the conditions agreed were violated.

The IMF showed restraint in view of Covid-19 spread and did not stop the programme. But when the economy started growing from lower base, the IMF started exerting pressure on the government of Pakistan to comply with its conditions.

Not only that, the Bretton Woods Institution also demanded reforms on the expansionary posture adopted during Covid-19. The subsidies granted left and right started haunting the government.

The economy did not grow in real sense; it was due to high consumption because of the expansionary stance. Unemployment remained very high even after decent growth in 2021. Again, the government resorted to appeasing the unemployed through numerous subsidies. Now it is difficult for the government to continue those subsidies from the resources at its disposal.

Under these circumstances, the IMF has laid down very harsh conditions. The government must comply with these conditions that include increased taxation, same level of sales tax on all items increasing lower sales tax on many items from 5 or 10 percent to 17 percent.

This will impact prices. Exemptions that have been withdrawn would increase cost and impact consumers. Electricity tariff has been increased out of proportion. Consumers might not feel the actual pinch during winter months, but in summer electricity bills would be a major monthly expense for most families.

The rates of piped gas have also been increased, while that of liquid petroleum gas (LPG) have skyrocketed. Piped gas is available to only 24 percent of the population the rest use LPG, coal, or kerosene oil all of which cost much higher than the piped gas used as kitchen fuel. For poor, kitchen fuel has now become an expensive item in the monthly budget.

As things stand now, it would be impossible for most of the families to survive the expected price hikes. There seems to be no way out. The writ of the government is at its lowest ebb and governance is at its worst that has multiplied the miseries of the poor and the middle-class. There seems to be no light at the end of the tunnel.