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Editorial: Economic Shock

If not handled properly, ongoing protests against hefty electricity bills risk a total collapse of the societal order in Pakistan

by Editorial

The $3 billion Standby Arrangement inked between Pakistan and the International Monetary Fund calls for raising utility prices to “realistic” levels to curb spiraling circular debt and generate tax revenue to replace the funds the state is unwilling to collect from traditionally untaxed sectors. In simple terms, this means Pakistanis were paying a national average tariff of Rs. 24.82/kWh prior to mid-July and Rs. 29.78/kWh after. Coupled with hefty taxes seeking to help the Federal Board of Revenue meet its revenue targets for the ongoing fiscal year, consumers are burdened with massive bills that have triggered nationwide protests, with citizens burning electricity bills to register their anger. In a bid to defuse this ire, the incumbent caretaker government has held multiple “emergency” meetings, eventually reaching the conclusion that it could take no measures without prior approval of the IMF.

The situation is worsened by rampant inflation, with the sensitive price indicator measuring essential commodities showing a 25% hike, year-on-year, in the week ending Aug. 24. The ongoing devaluation of the rupee against the U.S. dollar has also severely reduced the purchasing power of the average consumer, who has not seen salary hikes commensurate with the loss.

As an import-dependent economy, inflation in Pakistan is heavily reliant on the value of the national currency. By some estimates, Pakistan’s external debt has actually risen by over 60 percent thanks to the hefty devaluation of the past year. Unfortunately, despite this, successive governments have failed to initiate tax reforms, inflicting heavier burden on the lower- and middle-class segments to meet the government’s annual requirements. The ongoing protests against electricity bills are a symptom of the larger problem. If the state fails to address the disease, it risks the simmering anger boiling over into a total collapse of the societal order.

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