Islamabad: Although inflation has been declining over the past few months, it remains a major challenge for Pakistan’s economy, affecting market dynamics, citizens’ lives and causing considerable concern among policymakers, businesses and the general population.
There is no doubt that soon after assuming power, the government embarked on an ambitious plan to implement structural reforms to raise revenue and put the economy on a growth path. The challenge still remains and requires policy continuity and political stability.
As the situation began to gradually improve, the March 2023 data showing the headline inflation rate based on the Consumer Price Index (CPI) slowed to 20.7 percent from 23.1 percent in February, the Pakistan Bureau of Statistics (PBS) revealed, further measures , such as anti-hoarding measures and price reduction of agricultural and industrial inputs may also have better effects. Amid hopes of improvement after a deal with the International Monetary Fund (IMF) and a subsequent influx of foreign investment, the government hopes to get the economy back on track and provide relief to ordinary consumers.
Federal Finance and Revenue Minister Muhammad Aurangzeb also mentioned that inflation is on a downward trend. Speaking at an interactive meeting with the Geo-Economics Center and the South Asia Center in Washington DC, he said inflation had come down from a peak of 37-38 percent to 20-22 percent last month (March).
However, economic and business experts have emphasized the need for comprehensive measures to stabilize the economy and ease inflationary pressures to provide relief to the masses and create a conducive business environment. “Given that energy and transport costs play a key role in driving trade and production; their prices have a direct impact on inflation,” noted Islamabad Chamber of Commerce and Industry President Ahsan Bakhtavari.
The two sectors are intricately linked as each contributes to the cost structure of the other, multiplying the effects on inflation. He proposed reducing the prices of key energy inputs such as oil and electricity for a wider deflationary impact, as well as modernizing industry to increase productivity to lower unit production costs and consequently consumer prices.
Bakhtavari also emphasized the government’s role in using administrative measures to influence market forces and limit inflationary pressures. Global financial institutions have indicated that with the continued path towards sustainable and inclusive economic growth, there is hope that inflation will decline during the fiscal year starting June 2024. The Asian Development Bank (ADB) also optimistically predicted a decline in headline inflation. to 15.0 percent for FY2024-25, attributing macroeconomic stabilization.
However, he mentioned that the main factor in achieving this goal will be the cost of energy. According to the ADB, the central bank is maintaining a tight monetary policy, keeping the key interest rate at 22.0%, and is also committed to continuing a policy that reduces inflation to a medium-term target range of 5-7%. .
Amid the economic challenges, experts also attribute the inflation movement to international phenomena such as increased inflation in the United States and geopolitical tensions in the Middle East, which significantly affect Pakistan’s inflation through its impact on global interest rates and oil prices. “Because the economic challenges are enormous, we need a multi-pronged approach to economic recovery and inflation control,” said Dr. Usman Chohan, renowned economist and executive director of the Center for Aeronautics and Space Research (CASS).
He said that by enforcing tighter regulations on the prices of essential commodities and tackling hoarding practices, the government can help prevent exploitative prices and artificial shortages. Setting maximum retail prices for essential goods and improving market surveillance could ensure compliance and stabilize prices.
Dr. Usman also suggested to the government that concessional oil terms be negotiated with Saudi Arabia to ease the cost of oil importation, which is a major expenditure incurred by various sectors of the economy. As food inflation significantly affects the overall inflation figures in Pakistan, it is essential to improve agricultural productivity and optimize distribution channels.
These steps would ensure a stable food supply and prevent sudden jumps in food prices. We also need to integrate these approaches to provide a robust strategy for economic growth and inflation control,” advocated Dr. Usman while also emphasizing on improving industrial efficiency and regulating market practices. Strategic international negotiations and better agricultural policies could also help improve the economy and address the immediate and structural causes of inflation.
In view of the current recession brought upon the country by the reckless economic policies of the PTI government, a coordinated effort from all sectors of government and industry was urgently needed. These efforts may include policy formulation supported by empirical research, transparent and accountable governance to enforce regulations and joint public-private initiatives, as well as modernization of industries by benefiting from technological advances. Moreover, a comprehensive and well-coordinated strategy involving domestic reforms and strategic international negotiations could pave the way for a more stable economic environment in the country. The recent successful visit of the Saudi Arabian delegation with commitments to invest in various areas has raised hopes for more investments from friendly countries that would definitely pave the way for economic activity and bring respite to the lives of common people.