Ultimately, inflation is a monetary phenomenon when too much money chases too few goods. When the government runs massive budget deficits, it ends up printing more money, which leads to inflation. Rapid currency devaluation also makes imported items expensive. However, there is no real way to prevent the rupee from falling drastically except by generating exports. The rupee can be artificially propped up for a while by selling dollars in the market as former finance minister Ishaq Dar did, but that is only a recipe for emptying the forex reserves of the State Bank of Pakistan (SBP). Once the reserves have depleted, the currency falls with a big crash – which is how we landed in the 2018-19 crisis.
Unfortunately, such gimmicks are easier than pursuing sustainable economic growth through reforms to increase productivity and end exploitation. It is time that laws were made to prevent governments from using the monetary policy and the exchange rate for political gain, and make the SBP independent – with a specific mandate to keep inflation within reasonable limits. Unfortunately, when an independent SBP was proposed under IMF pressure a few months ago, there was a visceral reaction from all quarters. Perhaps now that the inflationary pinch is getting worse, it is time to revisit that issue and press the government and opposition to do the right thing this time around.
Aqil Sajjad
Tucson, USA