Another hike in electricity prices

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  • Individuals and businesses suffering

NEPRA has increased the electricity tariff by Rs2.37 per unit for the current month. Last month an increase of Rs1.66 per unit was made while in September it was hiked by Rs0.52 per unit. These monthly increases are the result of a condition placed by the IMF as part of the ongoing $6 billion Extended Fund Facility (EFF). An IMF team is currently in Pakistan to assess the country’s progress in complying with the Fund’s conditions on the basis of which the next tranche will be released. Apart from a tough revenue collection target one of the more rigid conditions are tariffs that the Fund feels are too low and should be increased. Therefore, during the three-year duration of the EFF, Pakistan is likely to keep on increasing electricity tariffs in order to ensure the release of funds every quarter that are crucial to keep foreign exchange reserves at minimum acceptable levels and manage the fiscal deficit. These regular increments have of course not been kind to private consumers nor businesses. Already grappling with record high inflation due to rupee depreciation; households are unable to maintain budgets, having to dip into savings while businesses are closing shop as input costs continue to increase and demand falls. A severe slowdown in economic activity and monetary policy tightening by the SBP has created a vicious cycle where disposable incomes are reducing, businesses contracting and unemployment rising.

There is no denying that the PTI inherited a mess of an economy with an out-of-control fiscal deficit problem to fix. It required immediate plugging, necessitating excessive borrowing from ‘friendly countries’ while an IMF deal was negotiated, albeit, badly. What little the government can do during this phase is also a question mark considering how the top two members of the economic team, the Advisor on Finance to PM and the SBP Governor, have been employed by the IMF and other multilateral creditors in the past and would presumably be more agreeable to their former employers’ point of view. Not having to worry about a constituency in Pakistan also adds to their indifference over how the current policies affect the common man. The government has to find a balance between how it wants to achieve its macroeconomic objectives and how badly those decisions affect the citizenry.