The recent increase in fuel oil and gas prices is extremely inflationary and devastating for the vast majority of the 225 million Pakistanis. These price hikes, combined with higher electricity tariffs plus a one per cent increase in the General Sales Tax, may send the already high 27.5pc consumer inflation to new heights — well past 30pc — besides suffocating the economy.

Pakistan’s GDP may not grow even 1.5pc — the latest rate projected by the government for this fiscal year ending in June.

From the people’s perspective, the real question is how many Pakistanis will lose jobs as the economy shrinks and how many will starve as real incomes fall?

For politicians and the establishment, the issue is what and how severe will be the consequences of massive joblessness and an increase in poverty and starvation? Will the current political turmoil and administrative chaos across Pakistan morph into large-scale civil strife? And, if that happens, what are the choices available to deal with it effectively?

From the people’s perspective, the real question is how many Pakistanis will lose jobs as the economy shrinks and how many will starve as real incomes fall?

There is an urgent need to develop a national consensus to address these issues. One can only hope that all stakeholders reach that consensus at the earliest, design an action plan to save the economy from collapsing and minimise people’s sufferings to whatever extent it is still possible.

In the first half of this fiscal year (July-December 2022), large-scale manufacturing (LSM) output declined 3.7pc year-on-year amidst the ongoing balance of payments crisis. Nine LSM industries, including the labour-intensive textile sector, automobiles and pharmaceuticals, reported double-digit yearly declines in their production. This partly explains the rise in joblessness.

In the service sector, labour-intensive housing and construction, transportation, and retail and wholesale businesses are also highly stressed amidst a severe energy and forex crisis. Job losses in this sector, too, remain high. Every day businesses are closing or suspending operations temporarily or scaling back production.

This trend will only pick up pace after the recent wave of inflation unleashed by higher fuel oil prices, higher GST and the Rs170bn mini-budget. Workers will continue to be fired permanently or temporarily — and many of them will have to accept pay cuts in return for job retention for some time.

Even before the current inflationary measures were introduced, the World Bank had predicted that 8.5pc of Pakistan’s 73m workforce or 6.205m people, would remain out of jobs during this fiscal year. Now, business leaders and analysts believe that the number of jobless will cross 10pc of the workforce. This means 7.3m people! Some of them come up with much higher estimates, but even this conservatively estimated number of the jobless looks alarming.

Under these circumstances, the State Bank of Pakistan (SBP) may find it quite natural to become more aggressive in interest rate tightening. In fact, that is exactly what the International Monetary Fund also believes. But can a big dose of interest rate tightening — jacking up an already high policy rate of 17pc by 2pc or more — serve the purpose? The risk of taking this route is obvious. Currently, inflation in Pakistan is less demand-pull and mostly cost-push in its nature. A big rise in interest rate may contribute to stagflation instead.

What seems more advisable is to find ways to contain food inflation. And that is the job of the federal and provincial governments (including two caretaker governments in Punjab and Khyber Pakhtunkhwa). In Karachi, milk and curd prices have risen to Rs190-Rs210 per

litre and Rs320-Rs360 per kg, respectively. Chicken meat is being sold at Rs700 per kg.

After the recently announced mini-budget, prices of all food items, including rice, pulses, cooking oil, ghee, jam, jelly and bread, are on the rise. With the stricter implementation of price controls and checks on unfair business practices, provincial governments can provide some relief to consumers.

News reports suggest that the Sindh government will soon launch a crackdown against profiteers and hoarders to ensure the availability of food items at realistic prices. Let’s hope the planned move meets its stated objective.

In many parts of the world, including Asia, food scarcity has emerged as a key economic challenge. The year-old Russia-Ukraine war has aggravated food shortages across the globe. According to the World Food Programme estimates, 349m people in 79 countries are now facing acute food insecurity.

In the case of Pakistan, the super floods of 2022 have also affected food supplies. Output of staple food like rice, wheat and maize has fallen short of targets. There is an acute shortage of pulses and some vegetables, including onions. Lower domestic supplies of food items and higher cost of imports due to the rupee depreciation continue to drive food inflation.

According to the Pakistan Bureau of Statistics, prices of essential food items have so far witnessed a yearly increase of 50pc (Mash pulse) to 500pc (onions). Chicken and eggs have become dearer by 93pc and 79pc respectively. Basmati and non-Basmati rice varieties have registered 69pc and 68pc in prices, and tea has become pricier by 64pc. Overall yearly food inflation in January averaged 39pc in urban areas and 45pc in rural Pakistan.

Administrative price controls are a must but not sufficient to contain such high levels of food inflation. Other things also need to be done. Our major and minor food crops need special attention. Unless the yields of these crops are raised with the help of technology and better seeds, their total output cannot match domestic requirements.

Minimising pre-harvest and post-harvest losses and enhancing the productivity of farm workers are also necessary. According to a recent World Bank report, Pakistan’s agricultural output per worker has risen by less than 0.7pc per year in the past three decades against a four-time higher average in South Asia.

Published in Dawn, The Business and Finance Weekly, February 20th, 2023