Money Matters

What went wrong?

Money Matters
By Mehtab Haider.
Mon, 03, 21

Securing a vote of confidence in the National Assembly from 178 members, a sigh of relief would be too soon for Prime Minister Imran Khan who conceded that the biggest difficulties for his regime were price hikes and challenges in the electricity sector.

Securing a vote of confidence in the National Assembly from 178 members, a sigh of relief would be too soon for Prime Minister Imran Khan who conceded that the biggest difficulties for his regime were price hikes and challenges in the electricity sector.

The latest political episode was staged due to the defeat of the government's nominee Finance Minister Dr. Abdul Hafeez Shaikh from the united opposition's candidate Yousf Raza Gilani, former prime minister by razor thin margin for the senate seat from Islamabad. The PM decided to seek a vote of confidence from the parliament, to prove his narrative that secret ballot allows horse trading, which he terms as the reason for his candidates defeat in senate elections.

But there is a need to analyze what has gone wrong on the economic front leading to complex difficulties for the PTI-led regime.

When PTI won last general elections in 2018 with the manifesto to bring visible change in economic and political horizon of the country, former Engro chief Asad Umar was picked for the priced post of finance minister. The government, however failed to come up with home grown economic reforms agenda. It presented a 'first 100- day agenda' but failed to take concrete steps to fix the chronic economic issues.

Businesses expected a close liaison with the PM and his economic team, however complained of lack of efforts from the governments side in this regard. Hence, the PTI government failed in building the shattered confidence of private sector.

The private sector felt isolated when the PTI came into power. Another step that lead to further damage in a tented relation between government and the private sector, was when the entire economic team was changed. This change came at a time when the IMF team was in Q Block of Pak Secretariat for finalizing conditions of $6 billion bail out under Extended Fund Facility (EFF).

The fnance minister, secretary finance and governor Bank of Pakistan were replaced and Dr Shaikh, Naveed Kamran Baloch and Dr Raza Baqir were brought in respectively on the most crucial economic decision making slots.

Dr Shaikh was appointed as advisor to Prime Minister on finance and revenues. Chairman FBR was also changed and Shahbir Zaidi was appointed .

Dr Shaikh, who was known a typical style of working, continued his old style and lacked the pro-active approach. His working style has been much crticised for not establishing liaison with parliamentarians or holding regular meetings with the business community.

His relation with the media is unlike previous finance ministers that held regular press briefings. Restricting himself within the premises of Q Block, or his beautiful residence on top at Ministers Enclave, has earned Dr Abdul Hafeez Sheikh a dislike amongst his party colleagues, observers said.

During last one and half year, it was hardly once or twice when he to appear before the parliamentary committee especially National Assembly Standing Committee on Finance. Even the chairman of NA panel threatened to write a letter for not appearing before the committee. Dr Shaikh kept himself as stranger for the parliamentarians.

Observers said it was a wrong choice of the incumbent regime to nominate Dr Shaikh for the senate from Islamabad. "Some parliamentarians showed their displeasure by casting vote against him. It was strategic mistake that committed by the PTI by awarding ticket from Islamabad."

Now the fate of Dr Shaikh hangs in balance as there are certain elements within the ruling regime who want to see him as advisor to PM. But that would have certain consequences as he might not be able to chair ECC, NFC, ECNEC and other crucial meetings.

Despite all the incumbent regime should come up with new strategy to confront the economic issues upfront instead of using dillydallying tactics to hush up complex and difficult issues under the carpet.

There is also need to analyze upsurge in inflationary pressures because of imports of essential food products, petroleum group, textiles and other raw materials.

The prices of petroleum crude have gone up from $35.6 per barrel in October 2020 to $47 per barrel in January 2021 --- a price surge of 31.9 percent just in the three months period. Goldman Sachs is predicting more increased prices of global prices, expecting Brent Crude prices to hit $75 a barrel in the third quarter this year on the back of faster market rebalancing and lower expected inventories.

In the wake of expected rising prices of oil in the international market, the domestic prices are bound to go up in months ahead so the CPI based inflation is also expected to increase.

This rising inflation through imported items is going to lead the Consumer Price Index (CPI) substantially for the coming months as CPI based inflation already re-bounded for February 2021.

In the food group, the palm oil prices in US dollar terms have gone up from 706.9 per ton in October 2020 to 848.4 per ton in January 2021 so it witnessed a 20 percent surge in prices.

Now the prices of palm oil have further gone up to $950 per ton so the overall price increase surged by 30 percent. It has resulted in increasing oil/cooking oil prices in the domestic market manifold in recent months for different brands.

The prices of Soyabean oil have increased from $708.9 per ton in October 2020 to $1200 per ton in January 2021 per ton so it went up by 69.3 percent. It is being used in feed for chicken so the domestic prices of feed increased from Rs 2,000 to Rs 4,000 per bag in the domestic market. The prices of chicken in the domestic market are not coming down from Rs 220 per kg.

The refined sugar has gone up from $442.3 per ton in October 2020 to $689.8 per ton in January 2021 so the prices surged by 56 percent. It had resulted in increasing domestic prices and now crossed Rs 100 per kg mark in the domestic market.

The prices of pulses have been increased from $446.2 per ton in October 2020 to $588.7 per ton in January 2021 so the prices became dearer by 32 percent. The price of tea has gone up from $2.1 per ton to $2.2 per ton in the last three months and witnessed a surge by 6.6 percent.

The raw cotton (metric ton) has gone up from $1.6 per kg in October 2020 to $1.7 per kg in January 2021 so it witnessed an increase by 7.4 percent. The synthetic fiber has gone up from $1106.1 per ton in October 2020 to $$1391.3 per ton in January 2021 so witnessed surge by 25.8 percent.

The imported fertilizer prices have gone up by 32 percent in the last three months period. The plastic material witnessed 18 percent increase, iron steel & scrap 8.3 percent and iron & steel 5.7 percent in the last three months period.

We know that the current inflation is essentially imported. But the government has to tackle it the best it can at home. There is a need for stringent demand side and monetary measures. A further rise in the inflation will push the government further to the wall than it already is on how to handle the raging fire in the economy.

The writer is a staff member