Inflation
The exchange rate parity has remained more or less constant for the past year, with the International Monetary Fund (IMF) continued insistence that 'a more flexible exchange rate remains critical to absorb shocks and support the rebuilding of reserves'. While the differential between the interbank rate and the open market rate does conform to the stipulated IMF condition yet there are concerns within the market and the multilaterals that the government is 'managing' the containment of the rupee — a view strengthened by the fact that the country's foreign exchange reserves remain entirely debt-based given that the rollovers from friendly countries alone are 16 billion dollars while the reserves as on 20 June 2025 were 9064.5 million dollars.
The actual weightage of fuels is lumped together with other utilities, both those that rely on imported inputs and those that do not — housing, water, electricity, gas and fuels — to account for 23.63 percent weightage. However, details provided by PBS (Pakistan Bureau of Statistics) show that the weightage given to liquefied hydrocarbons, associated with crude oil and petroleum, had a low weightage of only 0.9994 while that ascribed to solid fuel notably wood, charcoal, peat, dry dung, inexplicably was given a weightage four times higher at 4.4761 in calculation of CPI. Perhaps this was one of the reasons behind the IMF's concern noted in the 10 October 2024 Staff Report for the 2024 Article IV Consultation and Request for an Extended Arrangement Under the Extended Fund Facility: 'Data provided to the Fund is broadly adequate for surveillance in most areas, but there are weaknesses in the National Accounts (NA) and Government Finance Statistics (GFS) that somewhat hamper surveillance…important shortcomings remain in the source data available for sectors accounting for around a third of GDP, while there are issues with the granularity and reliability of the GFS. The authorities are prioritising addressing these weaknesses, supported by Fund TA on the GFS and a new PPI (Producer Prices Index).'
Core inflation, non-food and non-energy, that the Monetary Policy Committee (MPC) reportedly considers when adjusting the policy rate declined to 6.8 percent in June against 7.3 percent in May and 8.2 percent in April. It is relevant to note that during the PTI administration the MPC agreed with the Fund to link it to CPI instead of core though it is unclear whether the current administration has reverted to linking it to core inflation — unclear because the rationale for policy rate adjustment is baffling given that it was 12 percent from January to 5 May when the CPI declined from 2.4 percent to 0.3 percent (April) and core inflation from 7.8 percent to 7.4 percent. It was reduced by 100 basis points on 5 May to 11 percent and CPI rose to 3.5 percent in May 2025 while core inflation declined by a mere 0.1 percentage point — to 7.3 percent in May. In this context, the Fund in the first review documents uploaded on its website advised the SBP to base rate changes on macroeconomic data to enhance its acceptability.
Inflation is expected to rise in the current year due to administrative measures agreed with the Fund, to raise utility prices to meet the objective of full-cost recovery, and adhere to severely contractionary monetary and fiscal policies; however, the Cabinet is ignoring the rising poverty levels in the country, which have reached the levels that are in evidence in Sub-Sahara Africa. The World Bank has noted 44.2 percent poverty level that requires the formulation followed by convincing the IMF of the need for anti-poverty policies and subsequently their implementation in letter and spirit.
Copyright Business Recorder, 2025
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Recorder
5 hours ago
- Business Recorder
Govt committed to turning Pakistan into a $1trn economy by 2035: minister
ISLAMABAD: Federal Minister for Planning, Development and Special Initiatives Ahsan Iqbal said that the government is committed to achieve the goal of transforming Pakistan into a $1 trillion economy by 2035. 'Pakistan's economic indicators are once again showing signs of recovery and the government's commitment to achieving the goal of transforming Pakistan into a $1 trillion economy by 2035. The policy and planning processes must now rely heavily on disaggregated and credible data. Data is fuel for audience-based decision making to address issues such as energy, export, food security, and employment. Data is the key to identifying underserved regions and guiding youth employment and skills development initiatives. This data-centric approach is critical to achieving the ambitious goal of transforming Pakistan into a $1 trillion economy by 2035. This shift as moving towards scientific and precision planning, ensuring ultimate transparency and accountability,' the minister expressed these views during his visit to the Pakistan Bureau of Statistics (PBS)'s office on Wednesday. State of the economy A comprehensive presentation on dynamic data was given to the minister during his visit. The presentation highlighted the immense potential of this data for effective and efficient planning, implementation, and monitoring of development and economic growth interventions under the Uraan Pakistan initiative. During his visit, the minister also toured the state-of-the-art URAAN Pakistan Data Centre, which stands as a cornerstone for modern governance. Copyright Business Recorder, 2025
Business Recorder
6 hours ago
- Business Recorder
Crypto mining, other sectors: IMF rejects Pakistan's subsidised power tariffs proposal
ISLAMABAD: The International Monetary Fund (IMF) has rejected Pakistan's proposal to offer subsidised electricity tariffs to crypto mining and certain industrial sectors, warning that such moves would create new complications in the already strained power sector. Testifying before the Senate Standing Committee on Power, chaired by Senator Mohsin Aziz, Secretary Power Dr Fakhray Alam Irfan stated that all major power sector initiatives must be cleared by the IMF. He noted that although Pakistan has surplus electricity, particularly in winter months, the IMF is cautious about any pricing mechanisms that could distort the market. In September 2024, the Power Division proposed a six-month incremental consumption package (October–March) at marginal cost (Rs 23/kWh), based on last year's usage. However, after two months of discussion, the IMF only approved a three-month version, citing potential market distortions. The curious case of Bitcoin mining in Pakistan In a subsequent plan shared in November 2024, the Power Division suggested a targeted marginal cost-based package (Rs 22–23/kWh) for energy-intensive industries such as copper and aluminium melting, data centers, and crypto mining, arguing it would boost consumption of surplus electricity and reduce capacity charges. Still, the IMF rejected the proposal, stating it resembled sector-specific tax holidays that have historically created imbalances. 'As of now, the IMF has not agreed,' Dr Irfan confirmed, adding that the plan is also under review by the World Bank and other development partners. He emphasised that the government has not withdrawn the proposal and remains engaged with international institutions to refine it. During the session, a heated debate also emerged on the government's recent agreement with scheduled banks to reduce the circular debt stock of Rs 1.275 trillion. Senator Shibli Faraz criticised the deal, stating that banks were 'forced at gunpoint' to offer the loans. 'If I were a banker, I would have refused,' he said, warning that the burden would fall on consumers through future levies. Secretary Power rebutted this claim, clarifying that no new levies have been imposed. He stated that the existing Debt Servicing Surcharge (DSS) of Rs 3.23/kWh will continue for the next five to six years to recover the amount. He also highlighted that circular debt inflows have been reduced through timely subsidy injections. On consumer facilitation, Dr Irfan reported that over 500,000 people have downloaded the 'Apna Meter Apni Reading' app, allowing users to upload photos of their meter readings to potentially reduce inflated billing. He said the app will soon be extended to K-Electric (KE) users. The committee also expressed displeasure over the absence of the Federal Minister for Power, who was expected to answer questions on Independent Power Producers (IPPs) and sectoral inefficiencies. Senator Mohsin Aziz said the establishment of certain IPPs was an injustice and questioned why excess profits have not been recovered. Senator Shibli Faraz alleged that inflated project costs were used to justify higher returns, adding that no real steps have been taken to curb the circular debt crisis. 'The public is bearing the burden of government inefficiencies,' he said. Senators raised concerns about forced load shedding, especially in areas like Tharparkar, Matiari, and Umerkot, where daily outages last up to 14 hours, despite consumers paying their bills. Senator Poojo Bheel accused local officials of corruption, claiming they take bribes for illegal connections and restore disconnected supplies for a 'fee'. He emphasised that even paying customers are facing denial of their rights due to systemic failure. In response, Dr Irfan explained that revenue-based load shedding occurs in areas with losses exceeding 20%, citing a tragic case where a SEPCO employee was fatally stabbed during a disconnection drive. KE's Chief Distribution Officer Sadia Dada said that out of 2,100 feeders, about 30% face load shedding due to high electricity theft, often through Kundas (illegal hooks) in informal settlements. She said consumer bills are now offered in instalments to ease payment difficulties. Dr Irfan stated that 58% of consumers fall under the 'protected' category, paying Rs 10 per unit. With the approval of international partners, the government will allocate Rs 250 billion in subsidies, while also rolling out more tech-based solutions for theft control. So far, 500,000 people have downloaded the meter reading app, with 250,000 registered users. Senator Haji Hidayatullah raised an over-billing case involving a Rs 2.3 million charge on a property in Peshawar that had already been cleared by PESCO. He claimed PESCO officials offered to settle the bill for Rs 300,000, calling it blatant corruption. The Secretary Power assured that the matter will be investigated. The CEO of HAZECO also briefed the committee on issues in Sub-Division Lora Chowk, including estimated billing, feeder faults, and pending ELR work under release numbers 46241, 51911, and 51910. Following extensive deliberations, the committee expressed displeasure at the Power Division's repeated deflection of questions and directed the department to submit comprehensive answers at the next meeting. Copyright Business Recorder, 2025
Express Tribune
10 hours ago
- Express Tribune
Govt misses development target
Listen to article The government spent Rs905 billion on development schemes in the last fiscal year, which was lower than the allocation and may now require a downward revision in the 2.7% economic growth rate that had been worked out on the basis of Rs1.1 trillion in expenses. Of the Rs905 billion, a little over half — or Rs456 billion — was spent during the last two months (May-June), also underscoring the need to revisit the current budget strategy that artificially suppresses expenses. According to provisional figures, the federal government spent Rs905 billion under the Public Sector Development Programme (PSDP) in the fiscal year 2024-25, which ended on Monday. The Rs905 billion spending was less than the Rs1.4 trillion original budget approved by the National Assembly for the fiscal year 2024-25. However, the government subsequently cut the PSDP to Rs1.1 trillion, but still, the actual spending remained lower than the revised budget. For the last fiscal year, the government had announced a 2.7% economic growth rate, which was based on the assumption that the downward-revised Rs1.1 trillion PSDP would be fully spent. In a press briefing last month, the Chief Statistician of the Pakistan Bureau of Statistics (PBS), Dr Naeemuz Zafar, confirmed that the GDP figure assumed that the Rs1.1 trillion would be spent. An official of the PBS said on Wednesday that after the actual Rs905 billion spending, there will be some impact on economic growth calculations. He said the exact impact could not be immediately determined. Speaking to The Express Tribune, Federal Minister for Planning and Development, Ahsan Iqbal said, "We had almost touched the Rs1 trillion spending mark, but due to slow approvals by the Accountant General Pakistan Revenues (AGPR), the spending remained at Rs905 billion." Sources said the Ministry of Finance had instructed the department of the AGPR to slow down releases during the last days of June to meet International Monetary Fund (IMF)-related budget targets. According to the current budget release strategy, about 40% of the total budget was sanctioned in the last quarter, which often results in subpar expenses and may also cause leakages. A member of the Senate, who is also in the construction business, told The Express Tribune on the condition of anonymity that the AGPR did not clear contractors' cheques due to budget-related constraints. During the July-April period of the last fiscal year, the government had spent Rs449 billion. But in the past two months, another Rs456 billion was booked under development spending. In June alone, Rs308 billion in development spending was shown. However, the planning minister said that development work did not stop in the third quarter of the last fiscal year and that it was only the money that was released and booked during May-June. For the sake of the IMF programme, the finance ministry squeezed the PSDP to achieve quarterly and annual primary surplus targets. A recently released planning ministry report stated that lower-than-planned spending had impacted projects across various sectors. Despite thin fiscal space, the government was still adding either new projects or upwardly revising the cost of already approved schemes. Major spending heads According to the provisional figures, the government spent Rs60.5 billion on parliamentarians' schemes in the last fiscal year. The spending was more than the downward-revised budget. But Iqbal said that after initially deciding to revise the budget downward, the government decided to retain the original allocation for the Sustainable Development Goals (SDGs) programme. The parliamentarians' schemes are branded as SDG initiatives. Another Rs69.5 billion was spent on provincial projects, which are funded by the federal government. Financing provincial schemes is against the commitments given to the IMF and the National Fiscal Pact. About Rs64 billion was spent on schemes being executed in the erstwhile Federally Administered Tribal Areas, now merged with Khyber-Pakhtunkhwa. Against a downward allocation of Rs61 billion, spending on higher education remained at Rs58.8 billion. The Pakistan Atomic Energy Commission received its full Rs25 billion budget, but for this fiscal year, the government has drastically cut its allocation. Development spending by the Space & Upper Atmosphere Research Commission (SUPARCO) remained at Rs30.4 billion against the allocation of Rs41 billion. The government spent Rs154 billion on projects of the Ministry of Water Resources, which also include spending on two major dams. The allocation was Rs195 billion. For this fiscal year, the government has reduced the water sector allocation by 28%. Spending on motorways and highways under the National Highway Authority amounted to Rs144 billion, against the Rs161 billion allocation. Development spending on power sector projects stood at Rs88 billion, as against the Rs98 billion allocation.
