Pakistanis are braving double-digit inflation. The PTI government, now in its second year, has failed to contain it. Protesting voices from amongst the political class should have grown louder, but sadly they have not. Opposition parties are too preoccupied with their own survival issues to highlight public miseries. People suffer in silence.

Agriculture and industry are in trouble. High inflation and an increasing cost of inputs plus expensive bank finance continue to give them headaches. Farmers don’t know what to do, the factory output is falling. There is uncertainty and helplessness all around. The government is just trying to keep hopes of better tomorrow alive by replacing broken promises with fresh ones.

The IMF lending programme is on. Fiscal and monetary authorities are meeting most of the IMF conditions to avoid the suspension of crucial funding. Prime Minister Imran Khan’s political capital may be dwindling, but he remains fully blessed with unwavering support of the powerful establishment.

The State Bank of Pakistan (SBP) says meeting the four per cent GDP growth target in this fiscal year appears unlikely. It believes that full-fiscal year inflation may remain in the range of 11-12pc. The SBP’s first quarterly report for 2019-20 offers a number of explanations for why inflation remains high. But the report is silent on the prospects of inflation falling anytime soon. It seems that high inflation will continue to inflict more pain on people at least until June.

Just to have an idea of how strong inflationary pressures remained throughout 2019 despite monetary tightening, consider this: annualised national inflation was 5.4pc in December 2018, but it continued marching ahead and touched the 12.6pc mark in December 2019. In December 2018, inflation in rural Pakistan stood at 4.6pc, but within a year it gradually shot up to 13.6pc.

Agriculture and industry are in trouble: high inflation and an increasing cost of inputs continue to give them headaches

What is more painful is that in December 2019, annualised food inflation (as a component of CPI inflation) skyrocketed to 16.7pc in urban areas and 19.7pc in rural areas from 0.6pc and 0.5pc, respectively, a year ago.

The latest inflation numbers reveal that between December 2018 and December 2019, gas charges shot up 54.84pc, petrol price 17.95pc and electricity charges 17.57pc. It is no wonder then that the prices of hundreds of other goods and services in the inflation basket became prohibitively expensive.

Forget about all erudite explanations that the central bank offers or all brazen excuses that politicians in power make to justify the upward march of inflation. Imagine what exactly it means for hundreds of millions of poor Pakistanis to experience a meteoric rise in both general and food inflation. A number of food items recorded a sharp increase in prices during 2019.

The PTI government now ought to realise that cursing previous political governments for their ‘corrupt’ practices is no substitute for checking ongoing high inflation that is punishing people so hard and so directly. The SBP says in its first quarterly report that inflationary “pressures are expected to recede in the second half of the fiscal year”.

For full fiscal year, the SBP estimates that average headline inflation will be 11-12pc , but makes it clear that “this forecast is subject to upside risks in the form of a reversal (read increase) in global crude prices, exchange rate depreciation and increased budgetary borrowings (of the government).”

Oil prices topped $70 per barrel for the first time in the last four months after the recent killing of an Iranian general by the United States. The prices have softened somewhat after the Iranians settled the score with the United States by firing missiles at their two bases in Iraq.

But owing to a volatile political situation in the Middle East, stability in oil prices cannot be guaranteed. The exchange rate stability seen so far is mainly the result of a massive reduction in the import bill. Now that squeezed imports have started hurting government revenues and industrial growth alike, the import bill decline can be slower in the second half of this fiscal year. During the first half of 2019-20, revenue collection fell short of its target by Rs114 billion despite achieving a year-on-year increase of 16pc-plus because of import compression. The large-scale manufacturing output in July-October recorded a year-on-year decline of 6.48pc.

In July-December, the government’s overall budgetary borrowings remained in check — up from commercial banks but down from the central bank — but revenue shortages mean these borrowings may grow in the January-June period. So the upside risks to the SBP’s inflation forecast of 11-12pc would likely become visible in the near future and full–fiscal year inflation may exceed this forecast.

Published in Dawn, The Business and Finance Weekly, January 13th, 2020