Survey on inflation: Growth stagnates as unemployment soars

People believe high inflation is due to bad governance, not economic reasons, says report.

Shahbaz Rana January 22, 2011

ISLAMABAD: An overwhelming majority of Pakistanis think bad governance is one of the root causes of inflation, that government policies are anti-growth and their inflation target is unrealistic, a public sector think tank found in a survey.

Due to the lack of policy credibility, the prevailing law and order situation in the country and the implementation of the Reformed General Sales Tax, the inflation rate is likely to remain at 16.6 per cent by end of the current fiscal year (2010-11), show the findings of Pakistan Institute of Development Economics Inflation Expectation Survey.

“Bad governance” is the one of the main reasons of the current inflation level and the “policy credibility issue” is a puller behind higher inflationary expectations, showed the survey. These results are contrary to the government stance blaming the high budget deficit as the main cause of high inflation. Only 8.6 per cent Pakistanis think budget deficit is fuelling inflation.

As many as 97 per cent respondents said that the 9.5 per cent inflation target set by the government was unrealistic. Even though the government revised its target upward to 14.5 per cent after the 2010 floods, the actual rate by the end of the fiscal year is expected to overshoot the figure by more than 2 per cent.

The inflation rate recorded at the end of the first half of 2010-11 was 15.4 per cent. The survey revealed that 28.6 per cent of people believed higher food prices contributed the most to the inflation rate, while 27.1 per cent people believed bad governance was the major culprit. In contrast, just 14.3 per cent people blamed rising fuel prices for the high inflation rate. Those blaming the fiscal budget for the inflation were even lower at 8.6 per cent.

Around 14.3 per cent respondents termed persistent inflation as the major cause of the higher inflationary expectations while over one-fourth said the policy credibility fuels inflation. About one-fifth of the respondents said law and order situation was the primary cause of high inflation whereas only 15.9 per cent said the RGST was the main factor behind high inflationary expectations.

The survey results indicate that current monetary policy practiced by the State Bank of Pakistan to control inflation is ineffective. Almost eight out of every 10 respondents suggested that coordinated monetary and fiscal polices should be used to control inflation rather than relying only on monetary policy.

The bank itself said the government borrowing for budgetary support rendered their monetary policy ineffective. The central bank has increased the discount rate (the rate at which it lends to commercial banks) to 14 per cent.

Almost half of the respondents expected the same growth rate for the current fiscal year while almost a third expected a lower growth rate, shows
the survey.

On the question of usefulness of government policies to enhance growth as much as 79 per cent respondents felt that the current government policies were not helpful for the enhancement of growth.

During the first five months of 2010-11, the industrial output fell by 2.3 per cent, forcing the government to lower the expected Gross Domestic Product growth rate to 2.5 per cent.

About two-third of respondents thought that the current trend of rising unemployment was expected to continue for the next 12 months.

Published in The Express Tribune, January 22nd, 2011.


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