FeaturedNationalVOLUME 15 ISSUE # 13

Skyrocketing prices, nosediving governance

Prime Minister Imran Khan has admitted that most of his cabinet members are worried about rising prices of essentials and the worsening image of the government among the public. Some ministers have warned him that inflation is the biggest threat to his government, instead of the opposition.

Rising prices have maligned the image of the government among the public beyond repair, which had promised to reduce prices after coming to power. Instead, prices of gas, electricity, foodstuffs and essentials have doubled, if not tripled in the first 17 months of the Pakistan Tehreek-i-Insaf (PTI) government. The life of the common man has never been so hard in the 73-year history of the country. Inflation has risen to 14.6pc in January, 2020, from 12.6pc of the previous month, scaling the highest level in 12 years, the Pakistan Bureau of Statistics (PBS) noted. Inflation, measured by the Consumer Price Index (CPI), edged up 1.97pc over the previous month. Last time, the highest inflation in the country was recorded at 17pc in year 2007-08. The data shows that higher food prices, particularly of wheat and flour, pulses, sugar, gur and edible oil, have been the largest driver of overall inflation in January. It was also observed that prices of essential food items, especially vegetables and fruit, are higher in rural areas than in urban areas. In rural areas, the prices of LPG cylinders used for cooking have also witnessed the highest ever increase since 2013. The pass-through of exchange rate depreciation and higher international commodity prices, besides strong underlying demand pressures, started to reflect in higher year-on-year inflation from July 2019.

Food inflation in urban areas rose by 19.5pc in January on a yearly basis and 2.7pc on a monthly basis whereas it increased by 23.8pc and 3.4pc, respectively, in rural areas. It clearly shows that food inflation is very high in rural areas where most of the poor population lives, which is an unprecedented phenomenon. The International Monetary Fund has estimated that the country’s inflation may rise as high as 13pc, but the government estimates it will remain within the range of 11-13pc for the current fiscal year. The Asian Development Bank, in its outlook, projected annual inflation in Pakistan at 12pc.

In a bid to allay fears of the common people, the Ministry of Finance claimed that rising prices of everyday items, including edibles, would soon be brought under control. In a statement, it said the PTI-led government’s stabilization policies, agriculture sector interventions, and rigorous monitoring of profiteering and hoarding would soon result in easing of economic pressures. It said the end of the winter and the start of more favorable weather would also help reduce prices of food items, which have been attributed as having the largest impact on inflation in the past month.

Adverse effects of pre-monsoon rains on the wheat crop, disruption of the supply chain of essential items due to a particularly harsh winter, delay in harvest and arrival of crops in the market and lower production of vegetables resulted in higher-than-average food inflation. The change in weather and improved supply lines of potatoes, tomatoes and onions would help decrease market demands and price pressures.

The State Bank of Pakistan (SBP) has also left the benchmark interest rate unchanged at an eight-year high of 13.25pc for the next two months. The central bank has taken the step to curb inflation emanating from price hikes of power, gas and food. “Recent inflation outturns have been on the high side and there remain near-term risks to inflation primarily from food price shocks and potential increases in utility (power and gas) prices,” SBP Governor Reza Baqer said at a press conference. The central bank, however, kept its projection for average inflation unchanged at 11–12pc for the ongoing fiscal year 2019-20. It expected the recent surge in inflation to be a short-term phenomenon.

The central bank said Pakistan would miss the previously projected economic growth rate of 3.5pc due to poor production of major agriculture crops in the current fiscal year 2019-20. It had projected GDP (gross domestic product) growth at 3.5pc, which is unlikely due to adverse supply shocks in agriculture production. The SBP’s projection for real GDP growth is likely to be revised downward for FY20. Nevertheless, available monthly indicators of activity show that the slowdown in most economic sectors appears to have bottomed out, and a gradual recovery is expected in the coming months, it said. Earlier, the government of Prime Minister Imran Khan had set GDP growth target at 4% for the year.

However, critics say the central bank is only attempting to cover up flawed policies of the government, instead of acting as an independent institution. Its projection that the recent surge in inflation was a short-term phenomenon is also flawed because the climate emergency, which it blamed for poor production of crops, will intensify in coming months and years.

In a recent meeting, Prime Minister Imran Khan asked his economic team to take every possible step to bring down the prices of flour, cooking oil, pulses, sugar and rice among other essential edibles. “We came to power for the welfare of the poor. We have no right to continue staying in power, if we don’t care about them,” the premier told his economic advisers. However, the common people think he has already lost the right to rule the government. He had promised to bring down prices of essentials after coming to power and he has almost doubled them in his 17-month rule. His government has proved to be a nightmare for the common people. He will have to improve his governance urgently to stay in power.