FeaturedNationalVOLUME 18 ISSUE # 22

Excruciating prices

Prices of food and essentials are continuously surging in Pakistan because the government frequently hikes electricity, gas and fuel rates. The rulers recently increased petrol prices despite the fact that its rates in the international market are decreasing. The result will be another wave of inflation, which is already unbearable for most people of the country.

Recent international reports show people will continue to suffer high inflation in the foreseeable future. The World Bank has warned that inflation in Pakistan will further rise to 29.5pc in the current fiscal year on the back of higher energy and food prices and a weaker rupee. However, it said that inflation was expected to moderate over the forecast horizon as global inflationary pressures dissipated. “The real GDP growth is expected to slow sharply to 0.4pc in the fiscal year 2023 reflecting corrective tighter fiscal policy, flood impacts, high inflation, high energy prices and import controls. The agricultural output is also expected to contract for the first time in more than 20 years due to last year’s catastrophic floods,” it added.

According to the report, industry output is also expected to shrink with supply chain disruptions, weakened confidence and higher borrowing costs and fuel prices. The lower activity is expected to spill over to the wholesale and transportation services sectors, weighing on services output growth. The output growth is expected to gradually recover in the fiscal year 2024 and 2025 but remain below potential as low foreign reserves and import controls continue to curtail growth.

The international lending institution warned that poverty in Pakistan would inevitably increase with pressures from weak labour markets and high inflation, leading to further delays in external financing, policy slippages, and political uncertainty which posed significant risks to the macro poverty outlook for the country. “In the absence of higher social spending, the lower middle-income poverty rate is expected to increase to 37.2pc in the fiscal year 2023. Given poor households’ dependency on agriculture and small-scale manufacturing and construction activity, they remain vulnerable to economic and climate shocks,” the report added.

The lower activity is expected to spill over to the wholesale and transportation services sectors, weighing on services output growth. With dampened imports, the current account deficit is projected to narrow to 2pc of GDP in the fiscal year 2023 but widen to 2.2pc of GDP in the fiscal year 2025 as import controls ease. The fiscal deficit is projected to narrow to 6.7pc of GDP in the fiscal year 2023 and further over the medium term as fiscal consolidation takes hold. The macroeconomic outlook is predicated on the completion of the IMF-EFF programme, sound macroeconomic policy, continued structural reforms and adequate external financing.

The report says Pakistan’s economy is under stress with low foreign reserves and high inflation. Activity has fallen with policy tightening, flood impacts, import controls, high borrowing and fuel costs, low confidence, and protracted policy and political uncertainty. Despite some projected recovery, growth is expected to remain below potential in the medium term. Key risks, according to the World Bank’s outlook, are the non-completion of the IMF programme due to policy slippages and the non-materialisation of expected financing. Additional risks include political instability, deterioration of domestic security and external economic conditions and financial sector risks associated with revaluation losses, liquidity shortages, and high sovereign exposure. Health and education outcomes are also at risk as the high inflation and reduced incomes could lead poor households to lower school attendance and food intake, cautions the outlook.

With high public consumption, economic growth increased substantially above potential in the fiscal year 2022 at the cost of growing imbalances that led to pressures on domestic prices, external and fiscal sectors, the exchange rate, and foreign reserves, the World Bank observed. It added that these imbalances were exacerbated by the catastrophic flooding in 2022, surging world commodity prices, tightening global financing conditions and domestic political uncertainty.

Earlier, the International Monetary Fund (IMF) warned that the people’s hardships would not end soon. In its World Economic Outlook report, it significantly adjusted the inflation forecast upward in line with the prevailing harsh conditions. Compared with the 19.9pc average inflation rate projection at the time of the 8th programme review, the IMF has now shown the barometer crossing 27pc for the current fiscal year. The annual inflation rate has already peaked at a 50-year high of 35pc and keeping the average rate above 27pc suggested that the annual rate would remain elevated. For the next fiscal year 2023-24, the IMF has also increased its average inflation forecast by more than double to 21.9pc.

Prices of 26 essential commodities increased during the week which ended on April 13, according to the Pakistan Bureau of Statistics (PBS). The weekly report said that inflation decreased by 0.6pc on a weekly basis; however, it stood at 44.61pc on an annual basis.

There are several factors that have contributed to high inflation in Pakistan. The increase in the money supply, particularly in the form of borrowing by the government from the central bank, has led to higher inflation. This has increased the demand for goods and services, which has resulted in an increase in their prices.

The devaluation of the Pakistani rupee has also contributed to high inflation. This is because devaluation makes imported goods more expensive, which raises the cost of production and results in higher prices for consumers. The energy crisis in Pakistan has also contributed to high inflation. Frequent power outages have disrupted production, leading to a decrease in the supply of goods and services, which has resulted in higher prices. The prices of food items, particularly wheat and sugar, have also increased significantly, contributing to higher inflation. This is due to factors such as poor harvests, hoarding, and smuggling.

The increase in international oil prices has also contributed to high inflation in Pakistan. This is because oil is a key input in many sectors of the economy, and any increase in its price has a ripple effect on the prices of other goods and services. Overall, these factors have led to high inflation in Pakistan, which badly impacted the economy and the living standards of the people.