April 17, 2023 (MLN): The months of March and April are turning out to be record-breaking for the economic indicators of the country, unfortunately, an ill-omen for the economy and society.
After touching a 50-year high in February 2023, the inflation figures have created a new record touching an all-time high in the subsequent month. Inflation for March jumped to 35.4%, eclipsing February’s 31.5%.
The currency has also been hitting record lows, touching Rs288.99 against the US dollar on Apr 04, 2023. Gold prices surged to an all-time high of Rs187,144 per 10-gram and Rs218,600 per tola on Apr 14. The policy rate is also in an adverse record-setting mood which is now the highest in the country’s history reaching 21%. Ostensibly, this economic malaise shows no sign of hiatus.
In this Ramadan, a month of blessing for Muslims, Pakistan is facing its worst economic crisis ever. Prices of food items that are high in demand during Ramadan have surged almost 50%, with annual food inflation in March touching 47.1% and 50.2% for rural and urban areas respectively.
The cost of wheat flour may have surged 70% year-on-year, but for some, it cost their lives. The stampede at one of the food distribution centers killing at least 11 people in the economic hub of the country, taking the death toll to almost 21, depicts the impending apocalypse to which authorities pay no heed. The struggle to put food on the tables and the struggle to gift children with toys and new clothes on Eid have led to an increase in crime rates.
This inflation-crime nexus resulted in more than 21,000 reported cases in the metropolitan city of Karachi with 34 casualties. An unprecedented surge is also observed in the number of people begging on the streets. This economic crisis turning into a social crisis may lead the country towards social unrest; more detrimental to the already ailing economy.
The stalled IMF program despite acquiescent measures taken by the incumbents along with political uncertainty is the predominant reason behind economic uncertainty followed by skyrocketing inflation.
The reneging on the IMF agreement to remove subsidies, impose additional taxation measures and keep oil prices on par with the world kept the prices in upward momentum. The supply-side disruptions caused by the deadly floods resulted in a shortage of agricultural products.
The deprecation of local currency by almost 40% against the greenback in the fiscal year 2023 followed by high oil prices in the international market sustained pressure on the local currency and lead to high import bills. The widening fiscal deficit and the consequent measures to curtail it as a prerequisite of the revival of the IMF program lead the country in becoming the 17th most expensive country in the world with 31.5% inflation in February 2023.
Despite taking tough measures, the IMF program remains in limbo. The fund requires certitude on the availability of a $6 billion funding gap for the fiscal year 2023.
Can we see an immediate reversal pattern in the inflation trajectory of Pakistan? Well not so abrupt! The inflation is expected to further elevate.
Weekly inflation is on an upward trajectory since the beginning of 2023 and recorded at 44.61% year-on-year for the week ended Apr 13.
The probability of hyperinflation cannot be neglected, with food inflation touching almost 50% and the transport group witnessing 55% inflation year-on-year. The average inflation for FY-23 is also expected to cross 30%.
The resumption of the IMF program remains a lodestone and is critical for the country facing economic woes, however, it may not be the panacea. The decision of OPEC+ to prune production by more than a million barrels per day may push oil price towards $100 which may test the price levels and sustainability of the country’s balance of payments.
The hike in fuel prices by Rs.10 amid high international prices adds fuel to the fire. With oil prices currently hovering around $80/barrel and the exchange rate falling shy of touching Rs300/$, any upward momentum in international prices will be catastrophic.
The World Bank & IMF in their latest report revised Pakistan’s growth forecast to shrink to a meager 0.4% and 0.5% respectively for FY-23. Agricultural production is expected to decline by 20% further aggravating food inflation. The SBP’s hawkish stance has fallen flat in arresting inflation, on the contrary, made it impossible to conduct business.
The ground realities are severely critical; inflation has given hell to the middle class. To understand the gravity of the situation, one should look into the eyes of their children and imagine if they were not able to provide them with adequate food, let alone new clothes for Eid. Well, a majority of the population has to bear this pain and live with doom and gloom. The incumbents seem indifferent towards the brunt faced by its population, and their priorities differ.
There is no overnight fix! The game of chicken in the political arena must halt and sanity must prevail among the decision-makers to avert crossing the rubicon!
Copyright Mettis Link News
Posted on: 2023-04-17T13:02:22+05:00