Pakistan is grappling with a series of daunting economic challenges. Inflation continues to rise, unemployment is surging, and salaries and wages are declining, leaving the populace in a state of prolonged hardship.

Not only is there a persistent issue of ever-increasing inflation, but also the concerning trends of mounting unemployment and declining salaries and wages. These indicators suggest that the government may be failing to address the ongoing hardships faced by the people. In our region, long-standing corrupt practices persist, and government expenditures seem to prioritize the interests of the leadership over the well-being of the population.

The Consumer Price Index (CPI) surged by 4 percentage points in September, reaching 31.4 percent year-on-year, up from 27.4 percent in August. The CPI continued to rise despite a significant decrease in food inflation, with urban areas seeing a decline from 38.3 to 33.9 percent and rural areas from 40.6 to 35.4 percent year-on-year. While this drop indicates some success in curbing the smuggling of consumer goods across our porous borders, it’s crucial to note that the overall increase in transport costs due to rising petroleum prices offset the gains from seasonal variations in food prices. Secondly, non-food items, somewhat inexplicably, saw an increase from 16.3 to 26.8 percent in urban areas and from 22 to 32.3 percent in rural areas in September compared to August. This raises questions about the effectiveness of measures taken against currency speculation. Non-food items, including non-perishables like cooking oil and fuel, are imported and should not have seen a rise in their price indices.

Lastly, the combined category of housing, water, electricity, gas, and fuels, with a weightage of 27.03 percent, increased by 0.42 percent over the previous month. The primary contributor to this increase was liquefied hydrocarbons, which rose by 9.23 percent. The CPI of 31.4 percent highlights a growing disparity with the unchanged discount rate of 22 percent, as determined during the last Monetary Policy Committee meeting. This disparity has grown substantially, from 5.4 percent in August to a significant 9.4 percent. While it remains unclear whether the current Monetary Policy Committee is associating the discount rate with core inflation, as opposed to the past practice of using CPI, it’s noteworthy that core inflation increased by 0.2 percentage points in September, rising from 18.4 percent in August to 18.6 percent.

It is uncertain whether this slight increase in core inflation will be enough to prompt the International Monetary Fund (IMF) to pressure the State Bank of Pakistan to raise interest rates during the first quarterly review of the Stand-By Arrangement, based on end-September data. Critics argue that core inflation may have been understated, a claim they support by pointing out that urban inflation year-on-year for September stands at 5.4 percent (up from 25.9 percent in August to 27.3 percent in September), and rural inflation at 8.6 percent (up from 23 percent in August to 25 percent in September).

The Sensitive Price Index, which best reflects the impact on household budgets, rose from 27.9 percent in August to 32 percent in September, the highest level since June of this year. The Wholesale Price Index has risen from 24.3 percent in August to 26.4 percent in September. This increase can be attributed to the closure of industrial units. Unfortunately, this rise does not seem to align with the actual increase in input costs, including those considered as administered prices, which were agreed upon under the ongoing Stand-By Arrangement (SBA) with the International Monetary Fund (IMF).

With only three months into the current fiscal year, inflation is approaching the pre-SBA prediction made by former Finance Minister Hafiz Pasha. He had warned that without an IMF package, inflation could reach 70 percent, and with the package, it might still reach 35 percent.

The first SBA review is set to consider end-September data, and there are growing concerns among stakeholders. Given that the rate of inflation for September significantly exceeds the 25.9 percent average predicted by the IMF (although lower than the 28.3 percent in July and 27.4 percent in August), the annual average rate may well surpass the Fund’s prediction. This situation could potentially lead to widespread street protests, increasing the risk of adherence to many of the Fund’s conditions, especially those related to administered prices.

It’s worth noting that, as seen during previous IMF programs, these administered prices are not open for renegotiation. If the government does not comply, all borrowing from multilateral and bilateral sources, including friendly countries, may come to a halt until the government capitulates and begins implementing the Fund’s stringent upfront conditions in both word and deed.

Pakistan’s economy finds itself in a difficult situation due to sustained flawed policies spanning decades, under various civilian and military administrations. The only viable way out of this predicament is to reduce current expenditure for the ongoing year instead of increasing it by an astonishing nearly 53 percent compared to the previous year’s budget and around 26.5 percent from the revised estimates of the previous year. This will require sacrifices from major recipients of current expenditure.

The economic landscape in Pakistan is becoming increasingly treacherous. Soaring inflation, declining purchasing power, and inconsistent policy decisions are putting immense pressure on the population. As the country approaches the first review of its IMF Stand-By Arrangement, the specter of higher-than-anticipated inflation raises concerns about potential social unrest and adherence to strict IMF conditions. To navigate these turbulent waters, Pakistan must make tough choices, including significant cuts in current expenditure. Sacrifices will be required from all sectors of society. The path ahead is challenging, but bold actions are needed to stabilize the economy and ensure a brighter future for Pakistan.