Finance Minister Muhammad Aurangzeb on Wednesday admitted that a major reason for the rampant inflation of the past two years was conditions imposed by the International Monetary Fund (IMF) to raise gas and electricity tariffs and depreciate the national currency.
“Under the IMF stabilization program, the government has increased the long-due utility prices (electricity and gas),” he said in a written testimony submitted to the National Assembly, referring to the pricing hike from November 2023 to February 2024. This “unprecedented increase,” he said, had ultimately triggered massive inflation during the last fiscal year.
The government hiked the gas tariff rose by 520% in November 2023 and again by 319% in February 2024. Similarly, it raised electricity charges by 35% in November 2023 and 75% in February 2024.
According to the minister, inflation measured by the Consumer Price Index (CPI) was 8.9% in FY21 and 12.2% in FY22. He said the CPI increase had soared to 29.2% in FY23, before declining to 23.4% in FY24, adding it had averaged 7.9% in the first five months of the current fiscal year.
Explaining that currency depreciation had intensified inflationary pressures, he recalled the rupee had depreciated by 43.2% to Rs. 278.4 per dollar in June 2024 against Rs. 158.8 in July 2019. Additionally, he wrote, a 54% increase in sugar prices; 61% increase in palm oil prices; and 35% increase in soya bean oil price had also bolstered inflation.
At the same time, he wrote, wheat prices had jumped 35% and crude oil prices increased by 29%.
The devastating 2022 floods, said Aurangzeb, had caused significant damage to the economy, especially the agriculture sector, damaging 4.5 million acres of crops and killing around one million animals. Total damages and losses, he recalled, were $30.13 billion, of which agriculture was $12.9 billion.
According to the minister, the Competition Commission is seeking to curtail inflation by controlling cartelization and undue profiteering. Additionally, he said, strict action was ongoing against illegal foreign exchange companies, smuggling, and hoarding in the commodity market. This, he claimed, had helped achieve exchange rate stability, market confidence, and a smooth supply of commodities.
Senate briefing
Separately, appearing before the Senate Standing Committee on Finance, the finance minister rebutted reports of the government considering reducing the retirement age of government employees to 55 years to reduce the pension bill.
He said the government had acquired the ongoing $7 billion loan from the IMF at an interest rate of nearly 5%, adding loans from Chinese banks and other institutions had interest rates of 7-8%. The IMF loan, he said, would be repayable over a 10-year period, including a grace period, and repayments to the IMF would be in 12 installments on a semi-annual basis. He said he total loans secured thus far had matched the country’s external financing requirements and no additional loans would be required this year.