Common man to pay for government’s economic blunders
First came the SBP’s raise of key policy discount rate by 50 basis points. Then came the nine-month high increase in the prices of the entire spectrum of petroleum products. Much more of the sort is in the pipeline in the form of the promised hike in gas and power charges and a further fall in the value of the rupee. While the government denies that it has yielded to the IMF pressure, the developments show that it is following a schedule dictated to it step by step. The only difference is that while the Fund wants it to speed up things the government wants a little more time to perform the job.
The reasons given for the SBP’ raise of the policy discount rate expose Finance Minister’s rhetoric of having plugged the external financing gap that has stabilised the economy. The rationale for the rise is the persistent inflationary pressures on the back of a high fiscal deficit and continuing vulnerabilities on the external front. The rate hike will further slow-down the economy, which is already badly affected by a severe contraction in the GDP growth rate. What is more, it could adversely hit the fiscal framework by raising the cost of debt servicing for the government. It was claimed by Asad Umar that increased lending from private banks was an indicator that the economy had turned the corner. It appears now that most of the credit offtake was not for investment purposes but to stay afloat on account of rising cost of inputs. Had the economy witnessed a turnaround, a rate hike of the sort would not have been necessary.
The rise in the prices of petroleum products would further push up inflation. The Information Minister blames the hike announced by government entirely on the rise in petrol prices in the international market. The statistics however challenge the claim. While the international crude price inched up by less than 2pc over the last month, the government on Sunday increased prices of all petroleum products by up to 6.45 per cent for the month of April. The hike is simply meant to raise revenue through indirect taxation.