Pakistan Faces Rising Inflation amidst stalled International Monetary Fund Bailout

Pakistan is facing economic crisis amidst rising inflation and cost-of-living as successive governments battle to clinch a staff-level-agreement (SLA) for the resumption of a stalled International Monetary Fund bailout.

This is also attributed to high inflation levels fueled by the continued slide of the rupee and unprecedented high food inflation.

The lack of coordinated fiscal and monetary policy responses, coupled with the complete inability of the country’s central bank to keep inflation within the target range is another factor of the rising cost of living in the Asian country.

This has also led to a scenario where the country is on the verge of a hyperinflationary cycle.

Inflation for March 2023 in Pakistan, clocked in at 35 per cent, which is amongst the highest-ever levels.

For the more vulnerable segments, inflation is close to 50 per cent, as food prices spiral out of control.

The households depending on wage earners, and salaried individuals – whose real earnings have been on the decline for the last several years despite (any) nominal raises because of the rupee depreciation – are the hardest hit by economic hardship.

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The cost-of-living crisis gripping the lower-income strata of society has assumed the proportions of a full-blown disaster, unmitigated by the precious little the government has been able to do to address it.

The country’s policymakers both on the fiscal and monetary side are blaming commodity super cycle for any price increases some of which include incessant obsession with disrupting supply chains (thereby leading to shortages) – and by racking up debt to bridge fiscal deficits that are a function of bad governance and inability to expand the taxation net.

Moreover, as tax collection can’t even keep pace with inflation, the deficit is only bound to increase further, which means the state is going to borrow more to bridge the ever-increasing deficit.

The evolution of inflation during the last few quarters can be traced back to the surge in commodity prices globally, which led to a completely absurd decision to subsidize fuel prices, effectively encouraging consumption when prices are on the increase.

Zainab Sa’id