Macro Bites

Macro Bite # 97

2 min read
Over the past few weeks, the federal government repeatedly delayed raising the price of fuel. Markets were tumbling, the PKR was depreciating, the IMF was extremely annoyed, but the government (in true Pakistani fashion) kept putting off making a decision till the last possible moment. That moment finally arrived on May 26 when, effective midnight, the price of all fuels was raised by PKR 30 per litre—the single biggest price hike in Pakistan’s history.

Yet, it had been coming and was arguably necessary. In an ideal world, the government could choose to subsidise the cost of fuel for ordinary citizens, and in return recoup extra revenue from taxing the wealthy elite. But we don’t live in an ideal world, we live in Pakistan. And in Pakistan, only 2% of adults file taxes at all.

In the absence of a progressive tax policy, a perennially indebted government like Pakistan’s cannot afford to generously subsidise fuel for its citizens. That is why the rise in fuel prices led to a strange scenario—a rise in the KSE-100 and a strengthening of the PKR, as the government fulfilled one of the key conditions for the revival of talks with the IMF. In a normal country, the government being forced to turn to the IMF would be a cause for concern. In Pakistan, people are more concerned when Pakistan isn’t in an IMF programme.

WEEKLY DATA WATCH   

KSE-100 fell marginally this week, due to political uncertainty around PTI’s long march. PKR appreciated slightly this week, as optimism rose over an IMF bailout. Local gold prices rose significantly this week.

The annual change in the Sensitive Price Index rose to 16.97% vs. 16.54% last week. The poorest of the country (Q1) experienced a change of 14.94% vs. 18.12% for Q5. On a weekly basis, prices fell for all quintiles by 0.26%.

Increase in prices of Milk (+3.47%) and Eggs (+6.29%) contributed to weekly inflation. A fall in the price of Wheat (-12.3%) and Chicken (-4.41%) helped moderate inflation this week.

What Else We’re Reading (Local)

  • Can solar energy be a solution to Pakistan’s energy crisis? (Profit)
  • The federal government is preparing a relief package for families earning below PKR 40,000 per month, to reduce the impact of the hike in fuel prices. (Dawn)

What Else We’re Reading (International)

  • McDonalds investors have demanded a civil rights audit, as the company faces shareholder scrutiny over its environmental, social and governance practices. (Bloomberg)
  • Iran has seized two Greek oil tankers in the Strait of Hormuz, which is likely to add further pressure to the price of oil in the international market. (FT)

Asad Pabani

Journalist, researcher and documentary filmmaker. Prior works featured in Dawn, Soch Videos and Pioneers Post.

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