KARACHI:
From 2021 to 2023, Pakistan experienced a sharp increase in inflation, which has been driven by corruption, foreign debt, and other factors. In April 2021, the Consumer Price Index (CPI) reached 11.1%. The main drivers of inflation were food and energy prices, which rose by 16.3% and 11.7%, respectively. In 2022, the situation worsened as the CPI increased by 14.1% in June 2022; the highest since the 15.6% rate in January 2020. Food and energy prices remained the primary drivers of inflation with food prices increasing by 18.5% and energy prices by 16.8%.
As of 2023, the national CPI inflation has surged to 35.4%, while core inflation rose to 17.1% in urban and 21.5% in the rural basket. Corruption and foreign debt have contributed to the high levels of inflation. Mismanagement of public resources and inefficient allocation of funds have harmed different sectors and added to supply-side issues. Pakistan’s heavy reliance on foreign debt to finance its budget deficits has led to a significant increase in external debt servicing costs. This has added pressure on the country’s already strained finances, making it difficult to manage inflationary pressures.
The finance ministry has warned that inflation is expected to further increase due to “market frictions caused by relative demand and supply gap of essential items, exchange rate depreciation, agricultural losses due to floods, etc. To reduce inflation, the government can take short-term measures such as tightening monetary policy, adopting a strategy of fiscal consolidation, increasing agricultural productivity, combating corruption, and enhancing trade ties. But reducing inflation is a complex task that requires a comprehensive and sustained effort on multiple fronts, and the effectiveness of these measures will depend on the socio-political circumstances of the country.
Ali Gul
Johi
Published in The Express Tribune, April 7th, 2023.
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