Coming Hot on the Heels

Whether it is sugar, wheat, petrol, electricity, gas tariffs, or any other daily use items, the poor have felt the effects of inflationary pressure, as the Consumer Price Index inflation reached a record high of 12.2 per cent in February 2022 and is projected to remain 12.6 per cent in March. This spell of inflation comes hot on the heels.

The landmark decision of the Supreme Court of Pakistan, rejecting the unconstitutional move of National Assembly Deputy Speaker Qasim Khan Suri, was a welcome sign, as it has declared the ruling null and void and restored the supremacy of the Constitution in the country.

Besides, the Imran Khan government dragged the process of voting on the no-confidence motion on April 9, 2022, which will definitely harm the Pakistan Tehreek-e-Insaf (PTI) in the long run. For now, the supporters of the party are making hue and cry and took to streets on the call of their leader.

This leads to an unrelenting criticism of the PTI by the opposition parties, lawyers and even those who believe in the rule of law. The previous government was already faced with the criticism for the price hikes and uncertain conditions on the economic front.

Despite all this political noise, the PTI leaders are propagating its “relatively better” performance not only against the successive governments but also versus many of the world economies in the wake of the Covid-19 pandemic.

Comparative analysis showed that comparing Pakistan with other economies such as Turkey, does not make sense because of the different nature of its economy.

Pakistan’s economic conditions can only be compared with the regional countries such as Afghanistan, India, Bangladesh, Maldives, Sri Lanka, Bhutan and Nepal because of the similar nature.

The spectre of inflation worldwide reemerges after a somewhat benign period. Analysts and experts differ on managing the inflationary pressures with some endorsed the idea of high key policy rates and reduced liquidity with a dampening effect on the economic growth, while others feel that the inflationary pressure is short-lived and with a significant increase in economic activities and the ease in supply chain constraints, it will fade away.

The Russia-Ukraine conflict has also resulted in a hike in the international commodities prices.

Pakistan has a history of weak economic fundamentals, depreciation of the local currency, the international price fluctuation, stockpiling of the commodities, concessionary financing and fiscal stance, including income support programmes.

The monetary policy tightening is not the only tool to tame inflation, rather it depresses production and reduces employment opportunities. Vigilant management of both these policies on the part of the government is required. Besides the supplementary budget 2022 to curtail demand, the authorities at the helm of affairs should take a cautious approach in introducing new financing schemes and the relief packages.

The authorities should conduct a cost benefit analysis and calculate the inflationary impact of such programmes to do the least, as such policies have dented the economy in the past and can again do the same.

Headline or food inflation directly impacted the lives of the people, in particular, the low-income strata of the society. It is also the most problematic issue to be resolved. The successive governments remained unable to address this issue for years, resulting in dependence on the imported food items and agricultural raw materials.

Pakistan’s agricultural productivity, compared with the countries across the globe, is less than 50 per cent in the five main crops of wheat, cotton, rice, sugarcane and maize.

We need to change the mindset and take administrative measures to reduce the prices. The policymakers should realise the importance of the agriculture sector and make efforts to redefine the role of the government in commodity operations by improving regulations and research.

The new government should increase the spending on research, provide incentives to improve crop patterns and create a link between universities and research institutions with the farmers for better yields.

A higher GDP growth rate results in a sharp increase in the domestic commodities supply and; thereby, restricts price rises.

According to the FAO estimates, the global food import bill in 2021 would be the highest-ever of over $1.75 trillion, a 14 per cent increase from 2020.

Another significant factor is financial speculation in food markets, which has played its role in food price unpredictability. This means some low-income countries such as Pakistan could be out of the global food markets.

Pakistan needs to enforce agriculture reforms as soon as possible to capture the market gains by enhancing productivity and ensuring administrative action against hoarding. Fixing the woeful productivity is the only way out of the present mess.

The thrust of the initiatives should be to reduce food inflation, as it erodes the buying power of the vulnerable people.

Yes, inflation is expected to remain high in 2022 but short- and long-term measures can be brought for improved inflation targets.

Managing supply of commodities, cheaper fuel, improvement in the performance of competitive markets and rupee stability can prove to be a game changer for the country. These actions will definitely bring down the inflation rate to around 5 to 7 per cent in the coming years.

To tame inflation, we need to realise the interaction between the demand and supply chain and also make efforts to enhance productivity.