FeaturedNationalVOLUME 17 ISSUE # 4

Unabated inflation

Rising prices have been the biggest issue of the people of Pakistan and the Tehreek-i-Insaf government of Prime Minister Imran Khan has failed to address it. In fact, the problem has worsened with the passage of every day and the government appears to be clueless about it.

Prime Minister Imran Khan often claims to win the next election on the basis of the “performance” of his government, without ignoring the fact that people are highly annoyed at his government over rising inflation and unemployment. People also expressed their resentment in recent cantonment boards’ elections and if the situation remains the same for a few more months, a PTI ticket will become a liability in the next election and candidates would avoid applying for its ticket.

The Asian Development Bank (ADB) has projected that inflation in Pakistan would remain the highest in the region, at 7.5pc, and the economy would grow by 4pc, the fifth lowest rate among seven South Asian nations, belying the government’s claim of the country being the cheapest to live in the world. The Asian Development Outlook Update (ADOU) said Pakistan’s economy was expected to continue recovering in fiscal year 2021-22, with real GDP projected to rise by 4pc. It is the fifth lowest economic growth rate in the region as the rate in the Maldives (15pc) and India (7.5pc) remains the highest in the region. Bangladesh is projected to grow at 6.8pc and Nepal at 4.1pc in 2022. “Inflationary pressures will likely come from ongoing economic recovery and rising global oil prices but should be tempered by expenditure reform and the government’s commitment not to borrow directly from the central bank,” it noted.

The ADB report said the risk of inflation being higher than forecast derived from any unusual increase in oil prices or from potential currency depreciation in the wake of any early winding down of the ongoing IMF programme. The fiscal deficit is projected to narrow to the equivalent of 6.9pc of the GDP in FY22, which is still higher than the target set earlier under a medium-term fiscal consolidation program supported by the IMF. Expenditure is also projected to rise in FY22 as the government has budgeted substantial increases in subsidies and in social and development spending to protect the vulnerable and fortify growth and economic recovery. As domestic demand picks up and international oil prices rise, the current account deficit is seen widening to the equivalent of 1.5pc of GDP in the fiscal year 2022. Imports are expected to rise in the fiscal year 2022 in response to domestic economic recovery, higher international oil prices, and rationalisation of customs and regulatory duties in the budget of the fiscal year 2022-23. The ADB said that global hunger was expected to affect an additional 291 million people in 2021 in Asia, of which 72pc would be in developing Asia, particularly in Bangladesh, India, Indonesia and Pakistan.

According to the State Bank of Pakistan, the momentum of prices remained relatively elevated, with month-on-month increases of 1.3pc in July and 0.6pc in August. In its latest report, the central bank said a greater emphasis was needed to ensure the appropriate policy mix to protect the longevity of growth, keep inflation expectations anchored, and slow the growth in the current account deficit. The SBP noted that over the last few months, the burden of adjusting to the rising current account deficit had fallen primarily on the exchange rate and it was appropriate for other adjustment tools, including interest rates, to also play their due role.

In its latest report, Fitch Solutions noted that net exports would contribute negatively to headline growth as imports would outpace export growth. The report said the risk to the growth outlook was weighted to the downside. On the domestic front, given the more virulent delta strain in the community, amid a still low percentage of the population that are fully vaccinated, a strong resurgence in Covid-19 infections could weigh heavily on growth. On the external front, heightened security threats posed by radical groups such as the Taliban could lead to social instability and the destruction of infrastructure. This might weigh on the country’s gross fixed capital outlook and exporting capabilities as businesses become hesitant to invest in capacity building infrastructure. The report also revised up the forecast for government consumption growth to register at 4.3pc in FY22 from the previous forecast of 3.5pc. The government consumption will also be boosted by subsidies to the power sector, to ameliorate the country’s circular debt.

Finally, with petroleum products accounting for approximately 18pc of total imports value in FY21, elevated fuel prices will further increase Pakistan’s imports bill. The report forecast Brent crude oil prices to average $72 per barrel in 2021 and $69 in 2022 from $43.20 per barrel in 2020. Hence, it highlighted 8pc growth in imports for FY22, a revision upwards from its previous expectation of 5pc growth.

To compound the problems for the people and the government, the dollar has risen to an all-time high. Its value has jumped to Rs170 against the rupee. Experts say the rupee will remain under pressure after its smuggling to Afghanistan and it would further add to inflation in the country. On the other hand, the government is not willing to accept the reality and claims prices in Pakistan are the lowest in the region and the world. Prices of cooking oil, sugar and flour have almost doubled in three years. Rates of petrol and diesel increase fortnightly.

According to Minister for Finance and Revenue Shaukat Tarin, inflation has declined in the country, owing to the “balanced policies” of the government despite the highest increase of inflation in a decade worldwide. “Consumer Price Index (CPI)-based inflation has come down from 9.3pc to 8.4pc during the last two years,” he claimed at a press conference. He said food inflation had also declined during the last year.

It appears the government has lost contact with the common people, who say inflation has increased with every passing year of the government. The minister’s claim is like rubbing salt into the wounds of the common people. The government should first admit the reality that food has gone out of the reach of the lower segment of society, then it will be able to take measures to provide relief to people.