Umair Jalali comments on the unstoppable price increases in the economy of the country
When Ishaq Dar was brought from self-imposed exile he was presented as the panacea for all the economic ills afflicting the economy of the country and it was loudly proclaimed that everything will become normal sooner than later. However, the current situation is that now it is not just ordinary citizens who are feeling the heat but business confidence has fallen through deep with entrepreneurs increasingly pessimistic about the direction Pakistan is headed to.
Almost every other business professes to be in trouble and it is obvious that the ability to pay for every citizen has considerably lessened. The decimation of discretionary income by runaway inflation is evident in the fact that 81 percent of cloth and garment shop owners have reported facing adversity. While factors like inflation, taxes, load-shedding and reduced spending by customers have been cited as challenges by business owners.
The survey also points to the unprecedented uncertainty created by the ceaseless political turmoil in the country. Such policies have badly reduced fiscal space in the country and the financial planners find it extremely difficult to create some functional space to provide any relief to the hapless citizenry. The situation is very worrying indeed and there is hardly any chance of it improving in the near future.
While it is conceded that it is not only Pakistan that is feeling the pinch of economic adversity as the entire world is reeling from the shock of the Covid-19 crisis that was followed up by the disastrous Russian-Ukrainian conflict but Pakistan has also suffered from the extra devastation of the unprecedented floods that hit Pakistan this summer. Moreover, the fiscal mismanagement undertaken by the previous government simply was unimaginable and brought the country to its knees and it is taking an extra long time to recover.
The Economy Of The Country Combined
Despite these setbacks, it is still not very clear as to how Ishaq Dar plans to tackle this complex situation and what has happened to the confidence he showed when he took over his office. The signs are rather slow as economic activity is depressing as sales of petrol and diesel were down 18 percent and 25 percent.
Respectively, the first four months of the ongoing fiscal year are an indication of just how much steam the economy of the country has lost compared to a year ago. This is where the finance minister is required to step in to restore business confidence but for the moment Ishaq Dar is invisible and no one knows what he is up to.
Keeping in view the current situation the expectations associated with Ishaq Dar appear to be fanciful, to say the least, and it apparently looks like he finds the task much too overwhelming and he may not be able to do much about it. This difficulty could be measured by the fact that the weekly inflation posted a record increase of 4.13 percent for the combined income group on a week-on-week basis for the period ending 27 October mainly due to the highest-ever energy and food prices.
After rebasing, it was recorded that the second highest week-on-week increase of 3.68 percent on 22 September was driven by an increase in fuel adjustment prices in the electricity bills of consumers. On a year-on-year basis, the weekly inflation recorded an increase of 30.68 percent. Prices rose at such a fast pace recently on the back of surging food and fuel prices.
Consumer Price Index Inflation
A World Bank report estimated that the average Consumer Price Index (CPI)-based inflation in Pakistan would rise to 23 percent in the current fiscal year from 12.2 percent a year ago due to higher domestic energy prices, flood disruptions, and a weaker rupee.
The SBP has been tightening its monetary policy to contain surging inflation and the rupee’s rapid depreciation. Since September 2021, the central bank has increased the policy rate by a cumulative 800bps to 15 percent, the highest rate since the 2008 global financial crisis.
Soaring vegetable prices due to damage to the standing crops and a massive hike in electricity rates have also contributed to pushing up inflation. The International Monetary Fund said in its country’s staff report that the average Consumer Price Index (CPI) inflation was expected to surge to 20 percent in the current financial year, while core inflation would also remain elevated due to higher energy prices and the rupee’s decline.
The PMLN-led coalition government has projected a modest inflationary annual target of 11.5 percent for the ongoing fiscal year. The government revived the Monitoring Price Committee which convened only one meeting after its revival, clearly showing the government’s seriousness. The SPI monitors the prices of 51 essential items based on a survey of 50 markets in 17 cities across the country. During the week under review, the prices of 21 out of 51 items increased, 16 decreased and 14 remained stable. The Weekender