INFLATION-ridden people of Pakistan received multiple blows on Thursday, which would make their lives more difficult and there seems to be no end to their woes in this regard. The rupee witnessed its worst blood-bath as it ended at a record low of 285.09 to a dollar, 6.66% or 19 rupees lower from its previous close of 266.11 in the interbank market, according to the data from the State Bank of Pakistan. The unit’s fall was the largest single-day decline since January 26 when it lost 9.6 percent of its value after the government loosened exchange rate controls in an effort to revive the $6.5 billion IMF bailout.
As if the steep fall in the value of the rupee was not enough, the State Bank of Pakistan (SBP) massively hiked the interest rate by 300bps to a record level of 20% – highest since October 1996 on the plea to “anchor inflation expectations as it is critical and warrants a strong policy response”. Interestingly, the central bank has been jacking up the interest rate on the same plea but almost doubling of the rate from 1050bps since January 2022 has not helped an iota in countering the inflation and instead there are reasons to believe that the move was instrumental in compounding the price-hike situation. And inflation itself skyrocketed to half a century’s highest level of 31.5% — becoming the 17th most expensive country in the world –after the government massively raised energy and fuel prices coupled with the adverse impact of currency devaluation and imports at a halt.
Alarm-bells are ringing as data released by the Pakistan Bureau of Statistics (PBS) on Wednesday suggested that the country was fast heading towards hyperinflation, with at least four consumer goods’ groups already in the territory of around 50% surge in prices on a yearly basis. The Consumer Price Index (CPI) at 31.5% was highest since 1973-74 when it was reported at 32.8%. As rupee recorded a sharp drop against the US dollar, domestic prices of per tola gold on Thursday soared to Rs206,500 after gaining Rs9,400 despite the fact that the country does not import gold. The rupee was allowed to perish and the central bank jacked up the policy rate by three percent as against widely anticipated two percent at the instance of the International Monetary Fund (IMF), which is coming out with fresh and more intense conditions with the passage of time taking full advantage of the vulnerabilities of the country. The outside intervention and interference is so blatant that it forced a spokesperson of the Chinese Foreign Ministry to highlight that the financial policies of certain developed countries were the main reason behind the financial difficulties of a large number of developing countries, including Pakistan, and called for concerted efforts of all parties to play a constructive role in the economic and social development of Pakistan. The spokesperson rightly pointed out that the Western-led commercial creditors and multilateral financial institutions were the basic creditors for developing countries adding, “So, China calls for concerted efforts of all parties to play a constructive role in the economic and social development of Pakistan.”
There were speculations that the uncertainty surrounding a final deal with the IMF was behind the panic response of the market and investors and it was in this backdrop that Finance Minister Ishaq Dar firmly tried to quash the rumours by declaring that the negotiations were on track and a staff level agreement is likely to be signed next week. His pronouncement carries weight as the coalition government has already taken a string of measures — including adopting a market-based exchange rate, a hike in fuel and power tariffs, withdrawing subsidies, and more taxation to generate revenue to bridge the fiscal deficit. He also believed the country was heading in the right direction and blamed miscreants for spreading rumours about Pakistan’s possible default. His argument carries weight as foreign exchange reserves held by the State Bank of Pakistan are steadily increasing, especially after receipt of loans from a Chinese bank and this is a positive indicator as the country made all its due payments on time.
The Minister has a point but the real question is why the financial conditions of the country are not improving despite a series of measures taken by the Government in a bid to stabilize the situation. People of Pakistan are paying a heavy price in the shape of additional taxation, withdrawal of subsidies, devaluation of rupee, constant upward revision of electricity and gas tariffs as well as artificial price-hikes caused by weak governance. It is time for all stakeholders to sit around the table, discuss the issues threadbare and work out a strategy to safeguard the interests of the people.