KARACHI: The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has urged the government to ensure the effectiveness of price control measures through a robust magistracy system and vigilant actions against hoarding and malpractices.

Addressing a press conference at the Federation House on Thursday, FPCCI acting president Saquib Fayyaz Magoon said the power tariff for industrial consumers is not regionally competitive.

Industrial consumers should be charged with the actual cost of electricity which is estimated to be at Rs25.86 per kWh. The cross-subsidisation mechanism must be abolished as it is hurting the economy.

Due to a significant increase in capacity charges, amounting to 71.8 per cent of the power purchase price for FY24, urgent measures are required, Mr Magoon said. The government should prioritise renegotiating power purchase agreements with Independent Power Producers (IPPs) to extend the debt repayment period, he added.

Calls for robust magistracy system, actions against hoarding

He urged the State Bank of Pakistan (SBP) to focus on core inflation rather than general inflation as these exclude the most volatile components of the basket.

Elaborating further on inflation versus policy rate, he said persisting double-digit inflation, despite Pakistan’s contractionary monetary approach, has raised concerns regarding monetary decisions.

The sharp increase in prices can be attributed primarily to several factors on the supply side, including elevated international commodity prices, disruptions in global supply chains, crop damage due to floods, currency devaluation, and domestic political uncertainty.

Despite these supply-side challenges, the SBP, following IMF recommendations, has primarily employed demand-side measures such as policy rate adjustments to address double-digit inflation. This approach contradicts international practices, the FPCCI chief said.

He noted that despite a significant increase in the policy rates from 7pc in August 2021 to 22pc in February, inflation rose from 8.4pc to 23.1pc, indicating a potential misalignment between policy measures and inflationary dynamics.

Mr Magoon said adherence to the generic set of measures prescribed by IMF programmes has not successfully addressed the inherent structural issues leading to a worsening macroeconomic situation.

The country’s policy rate is the region’s highest at 22pc, with collateral requirements reaching 150pc of the total loan value, significantly restricting small and medium enterprises growth. Alarmingly, only 7pc of firms engage with formal lending institutions, in stark contrast to 21pc in India and 34pc in Bangladesh.

The transition to a flexible exchange rate system, as recommended by the IMF, has not produced anticipated benefits. Instead, it has triggered significant volatility in the value of the rupee.

Empirical evidence suggests that, on average, a 1pc increase in discount rate raises inflation by 1.3pc and debt servicing by Rs200-250 billion annually, FPCCI chief said.

The gas tariff for cement, commercial, and general industry (process) consumers has increased by 244.56pc, 203.98pc, and 110.58pc, respectively, since the gas tariff notification in August 2019.

Published in Dawn, March 15th, 2024