Double-digit demon

SBP increases its estimate for inflation in the current fiscal year to between 11 and 12 per cent

Inflation has gone up to a five-year high of 10.34 per cent on the back of rising housing, transport, and food prices. The continuing slide of the rupee against the dollar has also been a factor, for which monetary tightening has been suggested as a solution. Reports suggest that monetary tightening will do little to improve the situation, as the former categories are influenced more by their own unique factors.

The State Bank of Pakistan has also increased its estimate for inflation in the current fiscal year to between 11 and 12 per cent. This may go against the claim made during a recent TV interview by PTI’s former finance minister, Asad Umar, that inflation would peak in the next four months.

Also worrying was that, in the same interview, when Umar was asked if the economy had improved since he was replaced as finance minister, he tiptoed around an affirmative response instead of saying that the direction of the economy was the same as the PTI has adopted since day one. That direction, unfortunately, does not appear to be up. While time may prove the PTI’s policies right in the long run, there appears no sign that the short term guarantees any rewards, as the crippling weight of inflation continues to turn the middle and lower classes into a nation of Quasimodos.

Even on the growth front, plan to create an export surplus and attempt import substitution have serious flaws — namely, what can we export to fill a trade gap of around $25 billion, and how can we substitute imports with quality domestic products? Lest we forget, locally-assembled automobiles, phones, and other products often can’t compete on price or quality with their foreign counterparts, even with tremendous tariff protection.

Meanwhile, massive fines in international arbitration caused by the judicial activism of former Chief Justice Iftikhar Chaudhry and others have left Pakistan with legal bills amounting to billions of dollars. While these are unlikely to come due in the next few months, the nature of the cases was such that we need to be prepared to pay out at some point.

The belt is unlikely to loosen soon.

Published in The Express Tribune, August 3^rd, 2019.

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