The Scourge Of Inflation – The incumbent coalition dispensation is facing myriad problems but the most pinching of them is the horrible state of the economy. The half-baled policies of the government have unconsciously unleashed an inflation genie that shows no signs of abetting and is proving disastrous. The major drivers of rising inflation are attributed to food, energy prices and transport fares. It is observed that the mismanagement and lack of effective governance has played havoc as it pushed up inflationary pressures. The gas prices went up followed up by electricity and inflation expectations also contributed to increasing daily routine prices. To top it all the depreciation of rupee has also hiked inflationary pressures and made it unbearable. Pakistanis are facing tremendous difficulty in making ends meet and the price spiral has decisively impaired the ability to buy of the common man further depressing the economic situation. It may not come as a sop for the Pakistanis that the surge in prices is a global phenomenon that has put almost everything out of the reach of many people.
It is now reported that with the rising inflation that is hitting all segments of society the government as asserted to intervene in the market to partially reduce prices of essential food items, including sugar, flour and pulses. Though the government circles insist that the current phase of the price hike is a reflection of the macroeconomic adjustments being made but the simple fact is that the ability of the common man to eke his living has simply eroded. The most frustrating aspect of the entire situation is that the rising inflation has pushed a sizeable chunk of the population below the poverty line. It is duly noted that the current high wave of inflation was the offshoot of upward adjustments in administered prices of petrol, gas and electricity for managing the high level of the twin deficits, currency devaluation, supply-side constraints and higher transportation costs.
It is often observed that the high inflation periods in Pakistan have always coincided either with currency devaluation or increasing global oil prices or a combination of both. In this context it is implied that the administrative actions the government is contemplating will only have a partial impact on prices and will be limited to ending or reducing sudden periods of volatility in the market, which is important to protect consumers. There is hardly any doubt that the long-term solution to controlling the prices lies in documenting the economy, removing the irritants hampering the smooth operation of domestic commerce, and more importantly, continuing on the path of macroeconomic structural reforms to enable the economy to absorb the impact of sudden extraneous shocks like a jump in global oil markets.
The inflation forecasts largely draw on the assumptions that the global oil and commodity prices will remain subdued in the short- to medium-term, no major supply shock is going to hit the economy, the twin current account and fiscal deficits will continue to shrink, and the exchange rate will remain stable despite small, necessary adjustments. Despite all bookish explanations, the jump in inflation comes at a high cost for the low- to middle-income groups of the population. Thus, the rising prices, especially of food, energy, healthcare, education and house rents, mean that the people in these income brackets are barely able to sustain their old lifestyle. Higher inflation has equally damaged businesses by creating economic uncertainty, forcing the State Bank of Pakistan to raise interest rates to slow down monetary expansion, impeding investment and job creation and hurting export competitiveness.
In the current scenario the finance managers are required to be more receptive to ideas presented by all economic ministries of the government. But it looks that the economic managers are preoccupied in tackling challenging twin deficits and the exceedingly delayed IMF programme while dissenting voices are becoming louder that it needs to look at a much bigger picture. The policy to boost tax revenues at the cost of looming de-industrialisation seems to be under review. The pickup in economic activity may yield better tax revenues. No doubt the immediate problem is to stimulate investment and shore up the sagging manufacturing sector when the private sector borrowings from banks are showing an alarming negative trend.
In this context it is specified that the official interventions in the market will be through open market interventions and targeted subsidies to weak segments of society but it is not seen to become effective. This has been the usual refrain of official financial managers little realising that what is claimed is often not implemented. As a matter of fact the high prices of petroleum products are badly pinching the common man but the government also finds itself in an impossible position as it cannot grant adequate relief to the populace. The government is already hard-pressed to bring about supplementary budgets and consistent increase in indirect taxation. It tries to justify the regressive taxation on the pretext that it has to fulfill IMF conditionalities but this argument is not cutting ice with the people. The Weekender