Countering inflation

In November last year, a relative from the United States came to visit us in Islamabad. A banker, she drew a very disturbing picture of rising fuel prices and inflation the world over.

At that time, the then government functionaries were telling the masses that inflation was a global phenomenon and Pakistan could not escape it. The focus of their argument was that the country had only one solution i.e. to promote small industries and increase its export. Hence, everybody had to be productive. But that argument was discredited by their rivals. The masses were told that the problems were because of bad governance, corruption and fake promises of good days in case of change of government.

Now that the government has changed, the statistics show otherwise. In these four months of change, the data shows that rupee has depreciated against dollar by about 36 percent increasing inflation, petrol prices has gone up to Rs 233.91 and diesel by Rs244.44 per litre along with price charts of food items showing a perpendicular rise, especially in edible oil. The State Bank of Pakistan (SBP) issued a Monetary Policy Statement (MPS) on August 22, deciding not to increase the policy rate any further from 15 percent.

Since last September, the policy rate has witnessed a rise of ‘a cumulative 800 basis points’. However, the current account deficit keeps on rising. If truth be told, Pakistan is mired in the quicksand of debts. It is following the footsteps of Sri Lanka that collapsed amid 50 percent inflation rate, according to Foreign Policy. There is not much difference in inflation rate between Sri Lanka and Pakistan. Here, the annual inflation index is above 38 percent with 55 million languishing below poverty line, which is more than double the total population of Sri Lanka.

The country’s foreign exchange reserves are less than $9 billion. Despite the government’s best offers, overseas Pakistanis are now unwilling to park their dollars in Pakistani banks as compared to last year.

If we look at the second point of the MPC report, it seems to be a failed attempt at sugar-coating the almost doubling of electricity bills last month. People are up in arms on this unjustifiable increase, but the Central Bank thinks that ‘this was expected given the necessary reversal of the energy subsidy package – effects of which will continue to manifest in inflation out-turns throughout the rest of the fiscal year – as well as momentum in the prices of essential food items and exchange rate weakness last month.’

A temporary relief is expected in the next board meeting to be held on August 29 when the release of $1.2 billion IMF loan tranche is expected. It has been widely reported in national and international media that the Army Chief, General Qamar Javed Bajwa, has intervened to ensure the release of this IMF loan tranche.

Though the global markets are returning to normal, countries like China, India, and Russia have developed mechanisms to cushion their currency against any fluctuation in value of the dollar. It helps them keep inflation in check. Pakistan is not on the path to maintain this cushion and as a result, its imports-dependent industry remains very reactive and unpredictable.

Climate change is another most important, yet ignored, factor contributing to rise in inflation. Recent floods around Kohe Suleman region in Punjab and Balochistan have destroyed crops and livelihood. While the government in Islamabad is interested in using high-handed tactics to silence their rivals, the food basket of Punjab is almost washed away.

It means that the country is going to have shortage of wheat, sugarcane and cotton in the coming season. Loss of livestock is going to compound problems of the meat and dairy market, already beset by spread of animal diseases, resulting in death of cows and buffalos at a large scale.

It has been a pattern that these food products are smuggled from Punjab to Khyber Pakhtunkhwa (KPK) and from KPK to Afghanistan where their prices are higher than Pakistan. Successive governments have failed to stop this smuggling. The dilemma is that instead of addressing these basic issues, the government prefers to settle scores with their rivals. If we look at the solutions to these problems, they are simple and achievable.

We need to wean our economy off from textile and housing industries. Proposal for promotion of small industries is part of the solution. Entrepreneurship has to be promoted. Syed Zaheer Kazmi, a professor of entrepreneurship at National University of Modern Languages (NUML) says that it is sad to find that youths go far from the idea of launching their business as much as they rise in their university education. Youngsters want to work as clerks rather than starting their own business which is very unfortunate. Hence, as a role model, he has started a chain of food supply in the federal capital and does not think it beneath his dignity to deliver vegetables to houses of customers.

Pakistan needs inspiration like Professor Kazmi to pull out of the poverty trap. Unfortunately, our universities are thriving with professors and scholars who have never done what they teach in classrooms. The Higher Education Commission has to purge our campuses of such non-productive elements as professional skills have to be cherished.

Everybody has to be productive and have ease of doing business. Only then we can thrive as a nation to reduce poverty and counter inflation.

The writer teaches mediatization at IIUI