Gas, power tariff hikes under IMF fuel inflation: finance minister
• Gas prices rose 840pc, electricity by 110pc; rupee fell 43pc since 2019
• Sugar, wheat, palm oil, crude oil prices also saw major increases
ISLAMABAD: The government admitted on Wednesday that a record 840 per cent increase in gas prices, over 110pc rise in electricity tariffs and a 43pc currency depreciation under the International Monetary Fund (IMF) programme have contributed significantly to the unprecedented inflation that has eroded the purchasing power and living standards of many Pakistanis.
“Under the IMF stabilisation programme, the government has increased the long-due utility prices (electricity and gas),” Finance Minister Muhammad Aurangzeb said in a written testimony before the National Assembly on Wednesday.
Giving details in response to a question from another government parliamentarian, Tahira Aurangzeb, the minister said that from November 2023 to February 2024, a major increase in gas and electricity charges had been observed.
Gas tariff rose by 520pc in November 2023 (index increased from 217 to 1,344) and by an additional 319pc in February 2024 (index from 353 to 1,479). Similarly, electricity charges increased by 35pc in November 2023 and another 75pc in February 2024.
Mr Aurangzeb noted that “the unprecedented increase in the price of these items ultimately jacked up the overall inflation in FY2024”.
The finance minister also put on record that inflation measured by the Consumer Price Index (CPI) stood at 8.9pc and 12.2pc in FY21 and FY22, respectively. He also conceded that the increase in CPI more than doubled to 29.2pc in FY23, before declining to 23.4pc in FY24. The inflation in the first five months (July-November) of the current year plunged to 7.9pc, he said.
He said the currency depreciation intensified the inflationary problem, as the exchange rate depreciated by 43.2pc to Rs278.4 per dollar in June 2024 from Rs158.8 per dollar in July 2019.
The minister also counted other reasons for the increase in inflation rates, including a 54pc increase in sugar prices, from $280 per tonne in July 2019 to $430 in June 2024.
Palm oil prices also increased by 61pc during the same period, from $544 to $874 per tonne, while soya bean oil prices went up by 35pc to $1,011 per tonne from $748.
During the same period, wheat prices jumped by 35pc to $265 per tonne from $196.2 while crude oil prices increased by 29pc to $82.6 per tonne.
On top of that, the 2022 floods caused significant damage to the economy, especially the agriculture sector. About 4.5 million acres of crops were damaged, and around one million animals were lost. Total damages and losses amounted to $30.13 billion, of which agriculture suffered $12.9bn (43pc of total damages and losses).
The crop sub-sector contributed to 82pc of the total damage and losses, livestock to 7pc, and fisheries/aquaculture to 1pc. Due to crop damage and supply chain disruption, food inflation surged to 38pc while headline inflation increased by 29.2pc in FY2023.
To control the inflationary pressure, the minister said the Competition Commission was taking measures to control cartelisation and undue profiteering, but he did not mention those measures that could have been noticed by the citizens.
However, he also counted strict action against illegal foreign exchange companies, smuggling, and hoarding in the commodity market, which helped achieve exchange rate stability, market confidence, and a smooth supply of commodities.
The minister said that reductions in energy prices, such as a decline in electricity charges, alongside falling motor fuel prices, significantly eased inflationary pressures on the public and increased allocations of BISP welfare schemes supported the vulnerable. He also noted 10pc reduction in fares announced by Pakistan Railways.
Published in Dawn, December 12th, 2024