How will debt recovery under IMF conditions affect the common man in Pakistan?

The electricity bill of Rizwan Ehsan, who is associated with the import goods clearance sector in Karachi, has seen a significant increase in the last few months. Rizwan Ehsan belongs to the middle class and lives in a flat in Karachi with four members of his family.

According to Rizwan, his electricity bill was coming to five to six thousand rupees a few months ago, but in a couple of months it has increased to ten thousand rupees. He said that due to the change in weather in Karachi, it is understandable for the bill to increase slightly, but its doubling is beyond comprehension.

This increase in electricity bills is also increasing the rate of inflation in the country and may further increase after the International Monetary Fund (IMF) approves the release of a $50 million tranche for Pakistan, as this tranche The terms agreed to by the government are too strict for economists.

Among the conditions the government has agreed to is hike in tariffs in the power sector and end of tax exemptions.

According to economists, the State Bank may increase the interest rate to control the inflation in the coming days, which will adversely affect the country's economic output and make products more expensive.

What does the IMF statement say ?

After approving the issuance of a tranche of fifty million dollars to Pakistan, the IMF has said in its statement that the authorities (Pakistani authorities) continued the process of reforms in key areas, including the autonomy of the State Bank, reforms in the power sector. , corporate tax etc.

It should be noted that the tranche of fifty million dollars has been approved to be released to Pakistan under the Extended Fund Facility (EFF), which was signed by the IMF and Pakistan in July 2019. Under this, Pakistan was approved by the IMF for a loan of six billion dollars to support the country's external payments as well as sustainable economic growth.

Under this program, so far Pakistan has received 1.5 billion dollars in two installments and now after 50 million dollars, two billion dollars will be received from this loan.

What is the general scenario of inflation at this time ?

At present, if we look at the general scenario of inflation in Pakistan, its rate is on the rise.

The Central Bank of Pakistan recently said in its monetary policy statement that recent inflation data have been volatile, with headline inflation being the lowest in more than two years in January, followed by a sharp increase in February.

According to State Bank estimates, recent hikes in electricity rates and higher sugar and wheat prices are responsible for about 1.5 percent of the 3 percent rise in inflation between January and February figures.

The recent rise in power prices will continue to be reflected in headline inflation figures over the coming months, keeping average inflation in FY21 close to the upper end of the previously announced 7-9 percent range.

Elia Naeem, an economist at AKD Securities, has predicted that the inflation rate is likely to increase in the last four months of the fiscal year and may go up to 10 percent.

How will the increase in electricity prices increase inflation ?

The government hiked electricity tariffs in the country by 16 percent earlier this year, while agreeing to a 36 percent increase by the last quarter of this year as part of the conditions for borrowing money from the IMF.

It should be noted that the federal cabinet has recently approved an increase of Rs 5.65 per unit of electricity, through which eight hundred billion rupees will be collected from consumers by October, with the aim of reducing the revolving credit in the power sector.

Dr. Hafeez Pasha, former Finance Minister of Pakistan and former member of the IMF's Agreements Team, said that the biggest problem in terms of reviving the current program is Pakistan's willingness to accept huge increases in electricity rates. Which will give rise to a new wave of inflation and this will severely affect the import sector of the country along with the common man.