ISLAMABAD-Galloping inflation – triggered by the depreciation of the rupee and elimination of subsidies – has crippled the industries. Resuming the Regionally Competitive Energy Tariffs (RCET) for electricity and gas, and their effective implementation will potentially benefit the export-oriented sector, providing jobs and improving the balance of payments, said Muhammad Ali Kemal, Chief of SDGs at the Ministry of Planning, Development, and Special Initiatives.
Talking to WealthPK, he said the removal of RCET and lack of investment had halted industrial growth, adding that the revival of RCET will play a pivotal role in reducing the input costs for industries. “By enabling access to cheap raw materials, finished products can be manufactured at more competitive rates, fostering increased competition — both domestically and internationally. This, in turn, will help increase the export of goods and provide the much-needed respite for the industries exposed to the soaring inflation,” he said. Kemal maintained that the devaluation of the rupee and low foreign reserves had dealt a deadly blow to the import-dependent export-oriented sectors.
“These industries have witnessed a significant deceleration in their export figures, with the textile sector – constituting a substantial share of Pakistan’s export basket – experiencing a decline for the past seven consecutive months. Data available with WealthPK shows that textile exports witnessed a significant decline in April 2023. The exports for April 2023 amounted to $1.24 billion, marking a notable decrease of 29% compared to the corresponding month of the previous year, when these were worth $1.74 billion. According to Kemal, the first contributing factor to the escalating inflation rate could be attributed to the devastating floods, which caused substantial domestic supply shortages of essential food items.
“The consequences of this disruption have reverberated throughout the economy, driving prices upward and exacerbating the already dire situation,” he added. Data from the Pakistan Bureau of Statistics shows the alarming inflation figures. The consumer price index (CPI) soared to 36.4% on a year-on-year basis in April 2023, compared to 35.4% in the previous month of the current fiscal year and a mere 13.4% in April 2022.
Kemal also highlighted another critical factor influencing the inflationary surge: the rapid depreciation of the Pakistani rupee. As the currency loses value against its counterparts, the cost of imported consumer goods escalates, leading to higher inflation rates within the country, he added. This unfavourable exchange rate dynamic further burdened the export-oriented industries relying on the imported raw materials, he said. Adding to the complexity, he said the sharp decline in the value and volume of imports had compounded the issue by triggering a more rapid increase in the domestic prices of imported goods, thus placing additional strain on Pakistan’s industries and exacerbating the already fragile economic landscape.
Irfan Iqbal Sheikh, President Federation of Pakistan Chambers of Commerce and Industry (FPCCI), said the withdrawal of gas and power subsidies for the five zero-rated, export-oriented industries was disastrous. The FPCCI chief categorically demanded the resumption and effective implementation of RCET for electricity, gas and RLNG for the export-oriented industries for the remainder of the outgoing fiscal year and for the upcoming FY24 to salvage exports, industry, employment, revenues and balance of payments.