Inflation in Pakistan - Causes, Impacts and Remedies

Undeniably, Pakistan's burgeoning Inflation is a catastrophic threat to good governance. It would not be exaggerated to demonstrate that Pakistan's inflation has been increasing by leaps and bounds since the inception of the incumbent government. However, inflation implies a boost in prices that results in the purchasing power of a nation falling.

The current government has changed the shape of the country in terms of imposing a massive explosion of inflation on the masses. According to the Sensitive Price Index(SPI), the inflation rate has increased by 3.38 percent compared to last week, as revealed by the Pakistan Bureau of Statistics (PBS).

Nevertheless, adverse consequences on political, economic, social, education, and health have risen owing to the current inflation rate in Pakistan which is a looming threat to the state's good governance. Furthermore, it is concerned with the multifarious joint causes that led the state toward a high inflation rate. However, the incumbent government must take stringent remedial measures to sort out this issue to bring peace and prosperity to the state.

Read Also: Failure of Democracy in Pakistan

Inflation in Pakistan 2022:

No doubt, the burden of inflation on the masses can be demonstrated by the current scenario which is unbearable for the nation. Recently, according to the data released by Consumer Price Index (CPI), the state's inflation has been hiked by 13.8 percent in May 2022 on Year on Year (YoY). In contrast to the previous month, it was 13.4 percent, as illustrated by the Pakistan Bureau of Statistics (PBS).

Similarly, the US Professor of applied economics has shown the actual data about the rampant inflation rate in Pakistan. He, further, claimed that inflation in Pakistan is 3.2 times increased than official reports. Moreover, he added that Pakistan’s inflation is shooting up at 44.76 percent per year.

Furthermore, it is a quiet fact that petrol prices and the costs of other commodities go hand in hand in the country. The petrol price has fluctuated three times in the previous three weeks. Surprisingly, the total price of petrol has increased by Rs 84 in three weeks. Unfortunately, it soars to Rs 233.89 per liter after fixing the price a third time on June 15, 2022. Hence, it can be propounded by the above current facts and figures, Pakistan's public is coping with the unfavorable inflation by claiming the instability of the government.

Read Also: Pakistan Political History

How Inflation in Pakistan is a looming Challenge to Governance?

It is universally acknowledged that inflation poses an erratic threat to the socio-economic, politico-administrative, health, and educational sectors. Similarly, massive inflation is likened to an enhancement in the extent of the natural resource sectors, the informal economy, political instability, and less democratic political systems.

Impact of Inflation in Pakistan:

Undoubtedly, the abrupt inflation is not less than a curse for a nation who already suffering from severe economic challenges; therefore, it becomes an elephant in the room for Pakistan.

Agriculture sector:

Pakistan is an agrarian country, holding a prolonged massive employment rate in the agriculture sector. Due to the climate variability and inadequate water infrastructures such as dams, barrages, and canals, people shifted their means of production from water harvesting to tube wells. Resultantly, a major sector was handed over to the generosity of oil.

Now, the global price of oil is soaring, and the IMF is continuously impelling the government to end the subsidies on fuel. Therefore, it is plausible that the overall output of agriculture would be inflated commensurate to the fuel prices. Moreover, because of the increase in oil prices, the industrial production of Urea would also become costly. Today Pakistan's major energy sources for electricity generation are not dams and other renewable alternates, but imported oil.

Political Instability:

Inflation plays an unfavorable role in worsening the political situation of the country. As far as Pakistan is concerned, it gives rise to the failure of democracy in the state because of the massive burden of inflation on the masses. As people are poor to a larger extent in Pakistan so they protest against the Inflation imposed by the government. In response to Inflation, former prime minister Imran Khan, recently, has announced a nationwide protest against the increasing Inflation rate in Pakistan. Unfortunately, it illustrates the bad image of democratic countries in the world forum. It is truly said that inflation is the feebleness of democracies.

Read Also: Why Pak-Iran Gas Pipeline is not completed

Increase in Foreign Debt:

Inflation directly impacts the rate of foreign debt. It enhances the foreign debt owing to intensifying Dollar rates. Simply, foreign debt, as well as Inflation, go parallel in the country.

Trade Deficit:

The import rates eventually increase but the export rate decreases ultimately which gives rise to a trade deficit in Pakistan. Therefore, it is clear that various repercussions have been imposed on political stability in considerable aspects.

Reduction in Purchasing Power:

This can be demonstrated by the fact that inflation reduces the purchasing power of the people and commodities related to the standard of living. It causes a lack of participation and support for the economy of Pakistan.

Heavy Prices and Taxes:

On one hand, the state increases the prices of household items up to unfavorable limits. On the other, the government imposes heavy taxes on every sector resulting in a lower ability to purchase things and items. However, it is pertinent here to cite the adage of Milton Friedman, " Inflation is taxation without legislation. Furthermore, inflation impacts several realms of the economic sectors. It has negative repercussions on the production, Monetary Policy, and agriculturists. Hence, there are responsible factors that cause an economic downfall in the country.

Inflation and Education:

Firstly, the education sector is being neglected due to the high pressure of inflation on the poor as well as middle people. Unfortunately, inflation is fast becoming an educational curse. The hike in prices of textbooks, tuition fees, and price of school uniforms and shoes intensify owing to the inflation that resists parents from sending their children to school. Moreover, private institutions enhance their fee structure for students. Owing to this, parents cannot bear the educational expenses. Similarly, more than 24 percent of children are out of school due to poverty.

Inflation and Healthcare:

Secondly, the impact of inflation, on health sectors, is unforgettable in Pakistan. The hike in prices of medical stuff, medicines, diagnosis, and treatment are making healthcare a fragile sector for unaffordable patients.

Inflation and Poverty:

Last but not least, inflation boosts abject poverty and corruption in the country which gave rise to bad governance in Pakistan. The prices and costs of households and commodities increase up to an unfavorable limit due to which the poor cannot manage their daily expenses. All in all, it is crystal clear that inflation poses major menaces to the society and standards of the masses in the form of poverty.

Causes of Inflation in Pakistan

There are manifold politico-administrative and socio-economic responsible elements that cause inflation in Pakistan.

Corruption:

It is an undeniable fact that where there is corruption there is always intolerable inflation. Historically, Pakistan has remained in the grip of corruption since its independence due to incompetent leaders.

The economic fallouts of corruption are quite diversified. It deteriorates economic progress mainly through the aftermaths on investment and productivity, impedes economic growth, deteriorates equality in the distribution of income, implicates the composition and efficiency of civil maintenance, and increases the abject inflation rate.

Dynastic Politics:

The main cause of inflation in the country is owing to dynastic politics which can be validated as a major threat to good governance. Pakistan's politics is moving from one party to another ruling party which has been ruling since the creation of the Islamic Republic of Pakistan. As a result, political dynasties restrict political competition, exacerbate corruption, abject poverty, abuse of power, and enhance inflation in the country.

Weak Foreign Policy:

Weak foreign policy is also one of the catastrophic causes of inflation in Pakistan. However, before the inception of the current government, there was a persistent clash between the former prime minister Imran Khan and the opposition parties. It was the day when Khan was dismissed from the parliamentary office through the vote of the no-confidence motion on 10th April 2022. After that, Khan blamed America for his removal from office, and the slogan of Imran Khan was not to be a slave to any superpower state. As a consequence, the foreign relations began deteriorating leading the country towards innumerable loopholes. It is also a quiet fact that weak foreign policy incredibly impacts the country in the form of foreign aid, globalization, and affecting trade. It, further, leads to an increase in the inflation rate in the country. Hence, weak foreign policy is one of the major incites that give rise to Inflation in Pakistan.

Lack of Industrial and Technological growth:

No doubt, a persistent investment in the technology realm frequently differentiates developed nations from developing states. A considerable focus on this sector not only generates positive incomes on growth but also facilitates progress on the development front. The countries – like China – which house an irresistible proportion of the competitive high-tech industry rejoice in long-term economic growth in the wake of cost-efficient outcomes that nimbly stroke into both regional and foreign markets. Unfortunately, Pakistan lacks long-term investment in the industrial and technological sectors which is deteriorating economic growth. Hence, it further leads to the intensification of Pakistan's inflation rate.

Import Oriented Economy:

The rule of trade is simple: the more you sell more you earn. Those countries, which have successfully managed to raise their exports to imports, have been out of the vicious cycle of inflation. However, inflation is a general phenomenon, which is irrevocable; because it increases whether the exports are more or not. For example, the biggest export-oriented economy in the world China also witnesses inflation each year. But that inflation doesn’t fall in the lethal category as the inflation of Pakistan. For instance, to manage the flow of trade, so that no interruption could occur, Pakistan takes the burden of loans to uphold the foreign exchange reserves. Resultantly, when the trade deficit is widened, the country has no other choice but to keep its eyes on the lender of the last resort “IMF.”

IMF, though, is proclaimed the savior of falling economies, but the critics claim it is virulent. Because the provisions of going in the IMF plan include privatizations and the ending of subsidies, it reduces the interference of government in the market. Therefore, the door of delving to abate the inflation rate is closed with IMF.

Remedial Measures to Tackle Inflation in Pakistan:

Observing Pakistan's current situation, it is mandatory to take stringent measures to control inflation to manage the country's peace and prosperity.

Improving Pillars of Democracy:

Besides these, the independent judiciary, legislation, executive, and independent media are considered the basic pillars of good governance in a democratic country. Pakistan, being a democratic state, must address the fundamental pillars effectively to improve the conditions of the state. The effectiveness of the country brings good hope to the country that contributes to economic growth. However, economic stability, undeniably, is a major element in reducing the inflation rate in Pakistan.