The Pakistan Bureau of Statistics reported that the Consumer Price Index (CPI) for February showed a year-on-year increase of 31.6%, marking the highest-ever surge in prices in the country’s history. The spike was attributed to a rise in food and transportation costs, leading analysts to express concerns that families may be forced to make difficult choices and sacrifices due to the high inflation.
Arif Habib Ltd., a research firm, has reported that the latest annual inflation rate of 31.6% is the highest recorded since July 1965. Furthermore, the firm anticipates that inflation is likely to continue increasing in the upcoming months. In the previous month, inflation had already exceeded 30%. By comparison, inflation was 12.2% in February 2021.
The latest surge in inflation has led to a significant increase of about 50% in four categories: transportation, food, and non-alcoholic beverages, alcoholic beverages and tobacco, as well as recreation and culture.
Pakistan’s currency plunged to Rs 262 against the US dollar, causing concerns about a stalled IMF deal ahead of the central bank’s monetary policy review.
Pakistan has previously received economic assistance from the International Monetary Fund on five occasions, and if they receive it again, it will be another opportunity for them to stabilize their economy and address their financial challenges. Frequent blackouts and agricultural land degradation caused by floods that hit Pakistan last year have led to food insecurity and price increases. People are struggling to meet even the most basic needs.
To meet the condition set by the IMF, Pakistan has also agreed to increase the policy interest rate by 2%, or 200 basis points, which now stands at 19%.
Pakistan has met another prerequisite set by the IMF to receive USD 1.1 billion as part of the total USD 6.5 billion bailout package, which has led to this decision. This bailout will give Pakistan some time to resolve its unprecedented economy.
Why is Pakistan in crisis?
Some of the reasons that economists have identified that have led to Pakistan’s economic crisis are: firstly, the country’s budget is heavily influenced by political considerations, with parties offering freebies to citizens to win votes. As a result, funds that could be used for developing infrastructure are often wasted on petty expenses.
Secondly, Pakistan allocates a significant portion of its budget to defence—more than any other sector. This spending has come under scrutiny due to the country’s reputation for supporting terrorist activities and providing safe havens for terrorists.
Additionally, Pakistan’s dependence on China has compromised its autonomy, with some even referring to the country as China’s “adopted child.” While China has invested in various infrastructure projects in Pakistan, such as the China-Pakistan Economic Corridor (CPEC), critics have raised concerns about the country falling into a “debt trap” due to these projects.
To overcome its economic crisis, Pakistan must take innovative measures, gain the trust of its people, and prioritise the development of a strong education system and robust healthcare infrastructure. This will help create a skilled and healthy workforce that can contribute to the country’s GDP, ultimately improving the economy.
Transparency is crucial for Pakistan to regain the trust of its citizens. A strong and accountable government is necessary, and the people should be encouraged to voice their concerns and demand policies that prioritise growth and development.
Pakistan needs to focus on building resilient economies, with a focus on investing in human resources rather than military capabilities. This can be achieved by promoting good governance, strengthening civil society, encouraging people-to-people cooperation, fostering innovation, and developing technological capacity. By doing so, positive changes can be made to drive economic growth and development.