FeaturedNationalVOLUME 18 ISSUE # 05

Relentless prices

Pakistan is the second most expensive country in the South Asian region and prices are projected to remain at high levels in the coming months. The local currency continues to lose its value against the US dollar and it is feared that it would settle at over 270 against the greenback, which would further push prices up.

Prices are already beyond the patience threshold of the common people and national and international institutions have warned that inflation would continue to rise in Pakistan in the months to come. The government claims its policies are aimed at providing relief to the common people. However, all efforts of the government have proved to be counterproductive. Prices of food and other essentials increase on a daily basis and the government appears to be helpless. The Asian Development Bank (ADB) has declared Pakistan as the second most expensive country in the South Asian region. In its “Asian Development Outlook 2022 Supplement’, it predicted that the inflation rate in Pakistan would remain high in the coming months and the value of Pakistani rupee may fall further.

According to the forecast, energy is likely to become more expensive in Pakistan and the rate of economic growth in South Asia has slowed down due to floods, adding that the floods in Pakistan and Bangladesh have affected economic growth. “Flood disruption and damage are expected to slow down real GDP growth in combination with a tight monetary policy, high inflation and an unconducive global environment,” the ADB said. The report says the floods have caused significant damage to Pakistan’s economy, causing massive damage to agriculture, especially wheat and livestock. It projected inflation for South Asia — comprising Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka — to increase from 8.1pc in September to 8.2pc in the recent December update. It said Pakistan’s economic outlook for the fiscal year ending in June 2023 has “deteriorated under heavy flooding” while the “economy was already struggling to regain macroeconomic and fiscal stability”. It said flood disruption and damage in the country are “expected to slow real Gross Domestic Product (GDP) growth in combination with a tight monetary stance, high inflation, and an un-conducive global environment”.

The report said catastrophic floods have “dampened economic activity” in Pakistan, which was already affected by “stabilisation efforts to tackle sizeable fiscal and external imbalances and double-digit inflation”. It also highlighted that flood damage in Pakistan threatened the upcoming agricultural season as well, as wheat is usually planted from mid-October. It said the flooding is expected to have spillover effects on industry — notably textiles and food processing — and on services, in particular wholesale trade and transportation.

The fiscal year 2023 forecast for Pakistan has been revised to reflect a weaker currency and higher domestic energy prices along with flood-related crop and livestock losses and supply disruption, which have caused transitory food shortages and price spikes. It explained that transportation difficulties had “exacerbated these shortages and disrupted other domestic supply chains, broadening inflationary pressures and imposing production challenges”. According to the ADB, South Asia is on track to meet the growth forecast of 6.5pc in 2022 but the forecast for 2023 has been downgraded slightly from 6.5pc to 6.3pc. It said sub-regional revision for 2023 largely reflected “lower forecasts for Bangladesh and Pakistan” as recovery in Bangladesh was also “hampered by external imbalances and unexpectedly high inflation”. The supplement report highlighted three main headwinds continued to hamper recovery in the ‘developing Asia’ region — recurrent lockdowns in China, the Russian invasion of Ukraine, and slowing global growth.

Growth forecasts for the region — consisting of 46 developing members of the ADB — were revised down from 4.3pc to 4.2pc in 2022 and from 4.9pc to 4.6pc in 2023. According to the ADB, global economic prospects have worsened since the September update. It also said major advanced economies would expand slightly more than previously anticipated this year but are expected to endure sharp deceleration in 2023. Regarding economic activity in the United States and Europe, the report said tightening monetary conditions — when interest rates are increased to limit the amount of money that people and companies can borrow — along with financial conditions would drag the economic activity next year with the Euro area likely to fall into a technical recession.

However, the update highlighted that inflation is expected to continue to exceed central bank targets in both the US and Euro area in 2023. It would also necessitate continued tightening while oil prices are projected to remain elevated. The ADB warned “stubbornly high inflation in the US and other advanced economies” could prolong the current monetary tightening cycle. It cautioned that the synchronised nature of the squeeze may bring “overly restrictive monetary stances and unnecessary output and employment losses”.

Further growth deceleration in China caused by the Covid-19 pandemic or property market issues also threatened to “jeopardise regional economic prospects”, the report added. The ADB also warned that a “dangerous situation in the Russian Federation and Ukraine could renew surges in commodity prices, stoking global inflation and inducing further monetary tightening”. It listed additional challenges to the Asian economy as well: geopolitical tensions, notably worsening China–US relations, and climate-related risks.

According to the International Monetary Fund (IMF), Pakistan’s economy will slow down to around 3.5pc due to weakening economic conditions and the average inflation rate would peak to nearly 20pc by the end of the current fiscal year on the back of currency depreciation and higher commodity prices. The Ministry of Finance has also warned that flash floods might impact Pakistan’s economic outlook. The floods, caused by abnormally heavy monsoon rains, have adversely affected important and minor crops, which may affect the economic outlook through agricultural performance, the ministry said.

Inflation measured by the Sensitive Price Index (SPI) reached 29.42pc year-on-year in the week ending on December 15, on the back of higher food and fuel prices, data by the Pakistan Bureau of Statistics (PBS) shows. The previous week, it had been recorded at 30.66pc.

There are some indicators that the economy is stabilising but the common people have suffered badly in the process. The government does not hesitate from overburdening the people with frequent price hikes. People are worse off in the coalition government’s short tenure. They have been forced to miss the past PTI government despite its mismanagement. Prices have reached their highest level in Pakistan. The government aims to introduce more reforms. It means there is no prospect of relief for the people anytime soon and they will continue to suffer.