Drowning in inflation

October 3, 2021

The government has simply failed in making the right policies

Drowning in inflation

Inflation is once again the news all over the country and Prime Minister Imran Khan is expressing his ‘deep concern’ at the poverty level amidst a rising debt. The condition of the people is worsening as Pakistan is subjected to price fluctuations which are fuelling inflation.

Though inflation is increasing in other countries too but in Pakistan it is unprecedented without social support programmes. Pakistanis can barely afford basic necessities and more people are being pushed into poverty. They are already complaining that the prices of essential goods have skyrocketed.

The prices of groceries like wheat, rice, sugar and even vegetables have gone up and are sometimes even difficult to buy. People had pinned hope on Imran Khan’s government but unfortunately the situation has worsened; things have gone from bad to worse. Inflation and unemployment have made people’s lives miserable. They are unable to buy things for their family due to the high cost of daily commodities.

Inflation and the rise in food prices have recently become a cause of concern not only for consumers but also for many governments and policy makers around the world, especially when Covid-19 emerged as a paramount global challenge. Everyone is criticising the government for the rise in commodity and fuel prices but the problem is multi-faceted.

The lack of planning and dearth of timely actions is not just a problem of the current government but it remains a consistent problem in Pakistan.

However, the domains where the incumbent government can be held responsible is their lack of attention towards expanding domestic capacity and non-regulations. For example, why is Pakistan importing food items like wheat, sugar, etc? Recently, Pakistan has imported sugar and wheat at record-high prices to make up for the recent shortage whereas we should be the net exporter of these products.

But the policies followed by the past and current governments have skewed the incentive structures. We have always been dependent on foreign loans and our exports are disproportionate to imports, which has destroyed our economy.

The government’s ineffectual policy and the business community’s plans against the government, big business and agriculture lobbies have co-opted the government policy through rent seeking behaviour over the last few decades which have made the system fail to crack down on them. Why has the system failed? Because most of them were the incumbent government’s own ministers who were involved in sugar and flour corruption. They have businesses abroad.

Imran Khan, who was popular for his anti-corruption campaign, seems to have failed because the mafia has completely engulfed him and kept showing him good reports, due to which things are going in the wrong direction.

There are a lot of harsh realities that cannot be ignored. The government has simply failed in making the right policies and implementing them properly to ensure a smooth supply of goods.

The higher inflation is largely driven by food and energy prices, which have also been a global problem over the past year, with the crisis hitting hard, particularly in developing countries like Pakistan. The main causes of inflation include an increase in money supply expenditures, which were non-productive. This has basically enhanced inflation in Pakistan.

The result shows that money supply contributes to 90 percent of the explanatory power, which means that money supply is in someone’s control as the government accepts that there are mafias in every sector. Moreover, black money, corruption at all levels, global petroleum prices, debt repayment or financing, development budget, rise in government spending, downturn in foreign exchange reserves and foreign aid are the main reasons.

The International Monetary Fund (IMF) too is the biggest obstacle in controlling inflation. The conditions that the IMF has put on the loans are not people-friendly. If the official reports are to be trusted, the inflation rate in Pakistan is over 14 percent and rising.

Specifically, the increase in the prices of petroleum and electricity contributes to weekly inflation. Runaway inflation, high unemployment, rising current account deficit, growing public debt and increasingly tightened security situation are major challenges for Pakistan.

The government expresses confidence that it can mitigate the effects of rising inflation on the economy. However, the real test for the government will come in the next few months. Will it be able to deliver on its promises, especially when the Pakistan Tehreek-e-Insaf (PTI) government is entering its fourth year?

Additionally, the reason for rise in inflation is the global economy and the supply chain disruptions that come with it because of the Covid-19 pandemic. This being said; the government needs to take special measures to smooth out fluctuations in economic activity and use fiscal policy measures, which can lead to higher growth.

Economic stabilisation can be done by saving money in good times so that it can use the budget to stabilise production in bad times. Similarly, heavy reliance on indirect taxes and less reliance on direct taxes affect economic activity; the government should revise economic policy. Thus, for reducing the threat of future inflation, it is necessary to tax everyone sensibly and tackle hoarding mafias and bring an end to the rising cycle of inflation in Pakistan.

The writer is a student of International Relations at National Defense University 

Drowning in inflation