Inflation rate has risen in Pakistan since the beginning in late 2003. After the 1998-99, inflation was reduced to less than 5 percent in 2000 and remained. It remained stable until 2003. Strong monetary policy combined with fiscal consolidation seems to have had an impact to this state of inflation. Inflation control is a priority for policy makers. The poor have fewer self-defense options themselves against inflation. They carry few real assets or equals, and their savings are often in the state of cash or low interest deposits. Thus, the group is at high risk of inflation as it undermines its savings. In addition, high and volatile inflation was found to be harmful to growth. The Pakistan government needs to be careful about inflation.

In Pakistan there are many reasons behind inflation like nonproductive consumption, corruption and black money, foreign aids, exchange rate changes and government regulations etc. Today, inflation is one of the biggest problems Pakistan faces. Pakistan’s inflation rate is very high. According to the 2009-10 economic survey, the rate was 13.3%, up from 22.3% in the previous financial year. According to ESP 2011-12, the inflation rate (CPI) is 10.8%.

Over the past three years, most indices have shown a two-digit inflation rate during the 2018-2021 periods, compared to the one low digit held by PML-N during the 2015-18 periods. The simple increase in annual inflation in all three indicators shows the PTI inflation on average was 10pc per year or more compared to less than 3pc of PML-N’s.

The depreciation of the rupee/dollar has been contributing to the inflation rate in Pakistan’s economic history. Another reason for inflation is that the government has been raising interest rates. The policy rate almost doubled over a period of one year, from about 6% to 12% and subsequently to 13.25%, where it was maintained for about a year. The State Bank of Pakistan (SBP) says it has targeted high inflation rates and a forward-looking policy to continue before inflation. The PTI government gladly accepted the budget presented by the PML-N government in May 2018, without any cosmetic changes, but failed to achieve any of the key budget objectives. The budget deficit, as noted above, ended at 8.9pc although budgeted at 4.9pc.

When the government finally decided to join the IMF program in June 2019, the Fund set an impossible goal for FBR fundraising. In 2018-19, FBR’s collection was only Rs3, 829 billion even though the target was Rs4, 300 billion, indicating a negative growth in revenue after 23 years.

Food inflation: Falling food prices have a direct impact on people’s lives, especially in low-income countries like Pakistan. And it is a very complex problem to solve. We have not been able to tackle it over the years, increasing the country’s dependence on imported food and agricultural inputs. This neglect is of great concern, especially when the fall in food prices in Pakistan exceeds the rise in consumer price index as a whole. Pakistan’s agricultural production stands at an unimaginably low level with less than 50 percent of the world’s leading five major crops - wheat, cotton, sugarcane, maize and rice.

Government of Pakistan should issue new currency as the worst rate is the issue of new currency instead of the old currency. Under this scheme, one new note is exchanged for a number of old currency notes. The bank deposit amount is also adjusted accordingly. Such a measure is acceptable when there is an extreme problem of notes and there is hyperinflation in the country. It is a very effective measure. Monetary policy alone cannot control inflation. Therefore, it should be boosted by financial measures. Financial measures are very effective in controlling government spending, personal expenses, and private and public investment.

Government should reduce unnecessary spending on underdeveloped activities to curb inflation. This will also put a check on private expenditure based on the government’s need for goods and services. But it is not easy to reduce government spending. Although this measure is always acceptable but it is difficult to distinguish between significant and insignificant costs. Therefore, this step should be added to the tax.

 

Farrukh Majeed is a

freelance contributor.