Inflation – a challenging task for nascent government
Business
According to PBS figures, CPI-based inflation rate slowed to 20.7% in March from February’s 23.1%
ISLAMABAD (APP) – Although going down on trajectory during past couple of months, inflation continues to be a major challenge for Pakistan’s economy, affecting the market dynamics, lives of citizens and stirring a significant concern among policymakers, businesses and general populace.
No doubt that the government, soon after assuming power had embarked on an ambitious plan of bringing about structural reforms to boost revenues and put economy on growth path, the challenge still persist necessitating continuity of policies and political stability.
As the situation started improving gradually as revealed in the Pakistan Bureau of Statistics (PBS), figures for March 2023, showing headline Consumer Price Index (CPI)-based inflation rate slowed to 20.7% from February’s 23.1%, other measures like action against hoarders and cutting down prices of agricultural and industrial inputs may also have better impacts.
Amidst hopes of betterment after agreement with International Monetary Fund (IMF) and subsequent pouring in foreign investment, the government hopes to put economy on right track and ease out common consumers.
Federal Minister for Finance and Revenue, Muhammad Aurangzeb has also mentioned that inflation was on a declining trend. In an interactive session with Atlantic Council’s Geo-Economics Center and South Asia Center in Washington DC, he said the inflation had come down from the peak of 37-38 percent to 20-22 percent last month (March).
However, economic and business experts have stressed the need for comprehensive measures to stabilize economy and alleviate inflationary pressures for providing relief to masses and create conducive business environment.
“As cost of energy and transportation have a pivotal role in running business and production; their prices have direct impact on inflation,” remarked President Islamabad Chamber of Commerce and Industry, Ahsan Bakhtavari. “Both sectors are intricately linked, as each feeds into cost structure of the other, compounding the effects on inflation.”
He suggested reduction in prices of key energy inputs like oil and electricity for a broader deflationary impact as well as modernizing industry to boost productivity to lower unit costs of production and consequently, consumer prices.
Bakhtavari also highlighted role of the government in utilizing administrative measures to influence market forces and curb inflationary pressures.
The global financial institutions have indicated that continuing on the path leading to sustainable and inclusive economic growth, there is hope that inflation would come down during fiscal year starting from June 2024.
The Asian Development Bank (ADB) also optimistically predicted a decrease in headline inflation to 15.0% for fiscal 2024-25, attributing it to macroeconomic stabilization. However, it mentioned that cost of energy would be a major factor in achieving this target.
According to ADB, the Central Bank has maintained a tight monetary policy, keeping the policy interest rate at 22.0% and it is also committed to continue with a policy that lowers down inflation to medium-term target range of 5%-7%.
Amidst the economic challenges, the experts also attribute inflationary movement to international phenomena like heightened inflation in United States and geopolitical tensions in Middle East significantly influencing Pakistan’s inflation through their impact on global interest rates and oil prices, respectively.
“As the economic challenges are enormous, so we need a multi-pronged approach for economic revival and controlling inflation,” said Dr Usman Chohan, renowned Economist and Managing Director, Center for Aerospace and Security Studies (CASS).
He said, by enforcing stricter regulations on pricing of essential commodities and tackling hoarding practices, the government can help prevent exploitative pricing and artificial shortages. “Setting maximum retail prices for staple goods and improving market surveillance could ensure compliance and stabilize prices.”
Dr Usman also suggested the government to discuss concessionary oil terms with Saudi Arabia to mitigate the costs associated with oil imports, a major expense feeding into various sectors of economy.
As food inflation significantly impacts overall inflation figures in Pakistan, improving agricultural productivity and optimizing distribution channels are critical. These steps would ensure stable food supply and prevent sudden spikes in food prices.
“We also need to integrate these approaches to provide a robust strategy for economic growth and inflation control,” Dr Usman advocated as he also laid stress on improving industrial efficiency and regulating market practices. “Strategic international negotiations and better agricultural policies could also help improve economy and address immediate and structural causes of inflation.”
In view of the present recession inflicted on the nation by non-prudent economic policies of the PTI government, there was dire need of concerted efforts from all sectors of the government and industry.
These efforts may include policy formulation backed by empirical research, transparent and accountable governance to enforce regulations and collaborative initiatives by public and private sectors as well as modernizing industries by benefitting from technological advancements.
Furthermore, a comprehensive and well-coordinated strategy including domestic reforms and strategic international negotiations could also pave way for a more stable economic environment in the country.
The recent successful visit of the Saudi delegation with commitments of investment in different areas has raised hopes for more investment by friendly countries that would definitely pave way for economic activity and bring some respite to the lives of common people.
