What’s Driving the Price Surge in Pakistan?
- Fahad Bin Khalid
- October 24, 2024
- 3:25 pm
- 21
- Current Affairs
Rising inflation is now a top issue in Pakistan. It affects millions of daily lives. Inflation has risen for three years, hitting a peak in 2024. Many countries have recovered from the COVID-19 pandemic. But, Pakistan struggles with high prices for food, energy, and basics. What is causing this price surge? What is the government doing about it?
Inflation in Pakistan has risen since 2019. The country has faced double-digit inflation each year. From July to April of FY 2024, inflation averaged 26%. This was better than the 28.2% in the same period of 2023. In April 2024, inflation slowed to 17.3%, down from 20.7% in March, and significantly lower than the 36.4% rate in April 2023. Month-to-month inflation also saw a positive change, dropping to 0.4% in April, compared to a 1.7% rise in March.
These figures show some progress. But, challenges remain. The cost of essentials, like food and fuel, is a concern. The average Pakistani faces a high cost of living. Slightly lower inflation has yet to impact the economy or daily life.
Understanding the Causes of Inflation in Pakistan
The surge in prices did not happen overnight. Both global and domestic factors have caused the country's inflation crisis.
Post-COVID Global Inflation
The global pandemic disrupted economies worldwide, including Pakistan’s. Global price hikes came from supply chain issues, high demand, and slow recoveries. Some countries recovered quickly. But, Pakistan's economy lagged due to its financial struggles. High-income countries like the U.K. and U.S. saw a recovery slowdown. Pakistan faced extra challenges from political instability and weak economic policies.
High Government Spending
Pakistan's government has been spending more than it earns. This has caused fiscal deficits. Since 2019, Pakistan has had double-digit inflation. This is due to excessive government spending, which raised its debt. Nearly 41% of the budget went to debt servicing. This left little room to invest in growth or to relieve rising prices.
Russia-Ukraine War
The Russia-Ukraine conflict has disrupted global food and energy supplies. It has raised prices for essentials like oil and wheat. Pakistan, already struggling with inflation, was hit hard. The war disrupted the import of critical goods. Higher fuel prices and a disrupted balance of payments worsened the economy.
Currency Depreciation
The Pakistani rupee has weakened significantly over the past few years. A declining rupee raises the cost of imports, fueling inflation. A weaker currency makes imports, like fuel and food, more expensive for Pakistan. This drives up domestic prices.
Natural Disasters
Pakistan has faced severe natural disasters, including devastating floods. They have harmed the country's agricultural sector. The destruction of crops and agricultural infrastructure led to a sharp rise in food prices. A shortage of essential foods drove up inflation. It also sparked unrest as people struggled to afford basics.
Government Efforts to Combat Inflation
In response to inflation, the Pakistani government has taken steps to ease citizens' financial burden. Some efforts have shown promise. But, much more work is needed to address inflation's root causes.
Ramadan Relief Package
One government initiative is the Ramadan Relief Package. Its budget was increased. 7.5 billion to Rs. 12.5 billion. This package aims to provide low-cost food to those in need. It targets beneficiaries of the Benazir Income Support Program (BISP). Critics say the program was more a political move than a real solution. It provided some relief, but they doubt its effectiveness.
Currency Stabilization
To stabilize the exchange rate, the government has cracked down on illegal currency exchanges. The authorities want to reduce the rupee's volatility. They will do this by tightening regulations. They will require that foreign currency purchases be backed by valid documents, like visas and tickets. Stabilizing the currency is crucial to controlling import costs and managing inflation.
Controlling Smuggling and Hoarding
Provincial governments have boosted efforts to combat smuggling and hoarding of essential goods. Stricter measures now aim to stop black-market trading. It often worsens shortages and drives up prices. In one initiative, customs authorities confiscated Rs. 2.25 billion worth of essential commodities, showing progress in controlling illicit trade.
The Path to Stability
Despite these efforts, inflation in Pakistan remains a major challenge. Fuel and import costs continue to be a problem, even as global prices start to ease. The road to economic stability will require more than short-term relief packages.
To control inflation and ensure growth, we must:
1. Manage government debt.
2. Reduce imports.
3. Stabilize the currency.
These long-term solutions are critical.
For now, Pakistanis need to remain cautious with their spending as inflation continues to affect everyone. With sustained government efforts and some global relief, there is hope. The inflation crisis may ease, allowing Pakistan to stabilize its economy.
By addressing global and local causes of inflation, Pakistan can take a more strategic approach to recovery. Some progress has been made. But, a comprehensive plan is essential for long-term economic health. It must include fiscal responsibility, currency stabilization, and stronger anti-smuggling measures.
