IS THE AUSTERITY RECOMMENDED FOR POOR PAKISTANIS?
CREDIT TO GOVERNMENT SECTOR FLIES TO RS. 13 TRILLION
TARIQ AHMED SAEEDI (firstname.lastname@example.org)
Aug 11 - 17, 2008
Seemingly 'the ruling' has opened the floodgate to thunderstorm of prices rising the cost of living for poor Pakistanis and blanketed itself under a skinny layer of fast depleting public money to save its skin pristinely from the scorching heat of expenditures. That government is losing control in constituting state writ is a general impression shared amongst people of all walks of life.
Ranging from unbridled price spiral of food and non-food commodities to disturbed fiscal balance invalidated state writ instates everywhere. Prices of products recorded three decade surge in a brief period of last four months. Indices of consumer, sensitive, and wholesale have broken down all past records. Consumer price index, which evaluates retail prices of over 374 products and thus is a compatible mode of analysing changes in cost of living on monthly basis, has leapt in the double digit zone that is alarming given the overall perturbed economic outlook. By June this year CPI increased to 21.5%.
According to FBS, the main commodities that showed an increase are: potatoes (18.53%); tea (9.96%); spices (6.97%); sugar refined (6.94%); masoor (6.85%); onions (6.15%); bajra (4.18%); powdered milk (4.15%); rice (3.89%); wheat (3.69%); condiments (3.44%); jowar (3.26%); milk food (3.12%); maize (3.06%); bean (2.74%); meat (2.72%); vegetable ghee (2.67%); cooking oil (2.66%); gram whole (2.50%); fresh milk (2.33%); wheat flour (2.12%); cotton seed oil (1.59%); maida (1.53%); vegetables (1.42%); mustard and rapeseed oil (1.33%); oil cakes (1.31%); fruit (1.24%); gur (1.19%); mineral water (1.11%); eggs (1.07); fish (1.04%); and salt (0.73%).
After each spell of price hike at the behest of international stimulants, prices of all products available in the country are revised upward without any logical calculation. Rate of crude oil is a main stimulant that adds impetus to prices of products. Therefore in a result of crude price rise cost of utilizing transportation facilities increases. If, for instance, purchasing price of per barrel crude oil swells up importation cost by US$5 for government, which instantly passes down surge to cost of domestic consumption, per litre actual market price of gasoline becomes Rs. 9. More awkward upward trend is surfaced at the end where public transporters either increase travelling fares at their will or make administration involved in moving fares up. However, in both the cases price calculation has never been made public. It seems that price spiral brings a good opportunity for businessmen to extend profit lines. For that matter, nothing special sort of efforts need to be put forward. Poking at price structure of petroleum products can only evoke price storm.
Ministry of finance cum petroleum following incessant fortnight weight-lifting of prices of petroleum products has exhausted to a level to finally ponder at lessening price burden of oil consumers indirectly by reducing custom duty at crude importation stage. Dollar value of crude is also decreasing in international market after experiencing year pomp. While this should result in cut in ex-refinery price of petroleum products in Pakistan, the indirect way of cost cutting may likely to deflect the end benefits. Yet, direct approach such as cut in margins of oil marketing companies would be more effective.
Revision of prices of petroleum products by OGRA can only mitigate chances of price cartelization. But can it resist the charges instated in dispensing fuel on stations of oil marketing companies? For example, many CNG stations that include ones run by OMCs charge over Rs. 3 per kilogram CNG from consumers in addition to government fixed price. "Government fixes gas "retail" price. We charge extra because of on stations overhead expenditures, which nowadays have increased", said Abdul Sami Khan, Chairman CNG Dealers Association.
Government assumes full power on to revise up and down retail prices of CNG, LPG, petrol, diesel, kerosene, etc. In terms of premier energy sources it reviews prices every fifteen days and determines ex-refinery prices that consist of retailer' profits while for CNG, LPG six month interval is observed and its consumer prices are too built in all costs.
Group earning fixed income is one of the principal victims of price escalation. One fixed income earner wished if monthly salary be as reviewed every 15 days as prices of petrol and diesel.
One of the major causes of price escalation ascribes to excess of liquidity in the market. As bank credit keeps on increase so does inflation. In fact unproductive use of credit (capital) aggravates inflation. Despite slight reluctance to discourage bank credit, central banks resort to increase in discount rate as a last resort world over. While no desirable repercussions are surfaced central bank of Pakistan usually resorts to monetary tightening to tame inflation. Like it caused interest rate increase to 13% recently, earlier thrice also basis points have been raised to discourage government borrowing, which have main credit shooter, and that was too to no avail since government borrowing has yet to clam down. Can this time, the attempt would worth? Past results showed scant probability of success of monetary tightening to control inflation.
At the end of May 2008 aggregate outstanding position of credit to government sector stood at Rs. 13 trillion according to SBP. It is worth recalling that when this ruling came into power gross government loan was not over Rs. 600 billion while within two months of assuming helm of affairs government had accumulated the amount to Rs. 8.8 trillion by issuing securities (borrowing instruments) to SBP and Rs. 4.4 trillion to scheduled banks. Declaring Barclays as scheduled bank can also provide government sector a healthy source of generating loans since this bank at time when granted licence to operate in Pakistan a year ago had capital of $100 million, which nearly equals paid up capital of Rs. 7.5 billion of Pakistan's oldest bank: NBP. Till now beside SBP only scheduled banks can have stakes in treasury bills or securities issued by government sector.
Certainly government expenditures are compelling government to get loans from banks. But, why is capital not invested in productive use and why non development expenditures are still out of control of government despite claim of austerity measure? Is this austerity recommended for poor Pakistanis who have no option but become scapegoat in the hand of the ruling and fast one time a day amid uncivilised inflation?