Inflation rate
The fiscal year 2020 brought many unprecedented challenges for Pakistan’s economy. Its inflation rate soared to the highest level in 12 years (14.6 per cent in January 2020), which was the most worldwide. This was not only in comparison with the developed economies but also emerging economies. While this rate has significantly eased to 5.65 per cent this January–coming down to the level the ruling PTI had inherited in 2018–economy still looks far from rosy. Financial experts have already warned about the reading to increase in the immediate future on the back of the recent significant rise in electricity rates and prices of petroleum and petroleum products.
May be the upcoming days is what Prime Minister Imran Khan had in mind when he urged his countrymen to practice patience during the ongoing price hike. He believed that the fragile state of Pakistan’s economy was due to rupee depreciation while claiming that dollar inflows would arrest price hike.
Now how rupee could be strengthened, one might ask? Robust exports and high remittances hold the key to stabilising the currency versus the US dollar. As per Prime Minister’s Advisor on Commerce, Razzak Dawood, exports have risen to 14.2 billion dollars against 13.5 billion dollars in the year before. If the governments’ much-touted regional export trends are to be believed, Indian exports were down by 9.07 per cent in the second half of 2020. Compared to the nominal increase in Bangladeshi exports, Pakistan’ modest economy does deserve a pat on the back. But what’s missing from this analysis are the import figures. According to the SBP website, July-December 2020 trade balance stood at negative 11.4 billion dollars due to imports of essential food items, capital goods, oil, and industrial raw materials. With the domestic economy continuing to recover, these imports are further expected to rise.
Prime minister has given much weight to the inflow of foreign exchange reserves as a solution to Pakistan’s price volatility–a major determinant of which is remittances from overseas Pakistanis (crossing two billion dollars a month). Going by the predictions of State Bank of Pakistan, as well as donor agencies, Pakistan is soon to suffer to lower inflows due to faltering economies around the globe. The resulting current account deficit (arguably leading to imported inflation) would put a tighter squeeze on household budgets. Average Pakistanis are already suffering from dramatically high food prices, skyrocketing oil tariffs and exorbitantly expensive life-saving drugs. The last two years have seen the prices of essential kitchen goods rise by more than a third. Sugar, wheat, pulses and edible oil among other food items are on a persistent rise; throwing the gauntlet of reduced caloric intake and added financial stress down the middle class’s throat. The government has remained true to its resolve of building economy post-pandemic by keeping a close eye on balance trade. But just working on contractionary policies cannot work wonders. We need a combination of effective domestic and macroeconomic strategies. Strict action against hoarders (of commodities and currencies), addressing disruptions in the supply of food commodities are direly needed. The government should keep a vigilant check on core inflation and consumer price index. Simply put, we need a hail-mar pass that our incomes can absorb the increases in market prices.
