On June 6, Khalid Mehboob attempted self-immolation outside Karachi Press Club as he was unable to repay a loan he owed to a ‘loan shark’. On June 11, he died from his burn wounds at Civil Hospital Karachi.

Last week another man Mohammad Masood, a father of two from Rawalpindi, committed suicide by hanging himself from the ceiling of his house — also because he could not repay excessive interest on a loan he had borrowed from an app.

Mobile phone applications offering “easy loans” charge prohibitively excessive interest rates — often 200-300 per cent per year — but they mislead people through their social media ads that the interest rates are very low.

Poor, jobless people who desperately need money to feed themselves and their loved ones fall into this trap and get these loans. Within weeks after obtaining such loans, they realise that the actual interest rate being charged is too high and obviously fail to make interest repayments.

It is then that these killer apps, commonly known as loan sharks, begin to harass them — and in some cases, borrowers who are already stressed due to their financial problems end their lives to avoid this harassment.

Despite clear warnings from the State Bank of Pakistan, these loan sharks are operating freely. The Federal Investigation Agency often swings into action only when victims are harassed beyond limits, and they lodge official complaints — or, as above-mentioned cases, take their own lives.

The one-third of Pakistanis living in poverty are easy prey to loan sharks and human smugglers

The same is true for human smugglers, who fraudulently recruit jobless people for ‘overseas jobs’. Dozens of such smugglers are operating freely across the country. A few of them are nabbed only when their heinous crime leads to a huge national tragedy.

Last month, an overloaded boat capsized and sank in open seas off Greece. Onboard were at least 350 Pakistanis who had paid money to alleged human smugglers operating in the guise of recruiting agents of foreign companies.

Human smugglers and loan sharks thrive due to negligence by law enforcement agencies. And poverty and joblessness feed them.

According to the World Bank, over one-third of all Pakistanis, 37.2pc, are living in poverty. The number of unemployed people in the working age group is no less than eight million.

High inflation continues to erode people’s net income and purchasing power. In June, year-on-year consumer inflation stood at 29.4pc, and food inflation was 40.8pc in urban areas and 41.5pc in rural areas. A month earlier, in May, consumer inflation was 38pc, and food inflation in urban and rural areas stood at 48.1pc and 52.4pc respectively, according to the Pakistan Bureau of Statistics (PBS).

SBP is ready to further tighten monetary policy if inflation persists

Consumer inflation and particularly food inflation at these high levels are unsustainable. Pakistan’s economy grew just 0.3pc in the last fiscal year, and this year’s targeted growth of 3.5pc seems elusive due to the growth-choking nature of the International Monetary Fund’s $3 billion nine-month temporary financial support.

Inflation must be reined in to avoid massive erosion in people’s net income and purchasing power in the second consecutive year. The State Bank of Pakistan’s tight monetary policy continues, and the central bank says it is ready to tighten the policy further if inflationary pressures remain elevated.

But in Pakistan’s context, tightening interest rates alone cannot help in controlling inflation effectively due to (1) the presence of a large undocumented economy, (2) rampant corruption, (3)slippages in fiscal targets and massive buildup in domestic debt, (4) structural weakness in the external sector and growth in external debts that always keep the exchange rate under pressure, (5) political instability and uncertainty, (6) structural problems of the energy sector and consequent issues in energy pricing, (7) near absence of implementation of the administered prices, and (8) dominance of the private sector by a few groups, most of which are controlled directly or indirectly by politicians and the powerful “establishment”.

Controlling food inflation that affects even the poorest of the poor Pakistanis is even more difficult.

In addition to the above-mentioned reasons, lack of coordination between provinces and the federation and structural weaknesses in the agriculture sector and dominance of the food sector supply chain by unruly retailers and greedy wholesalers make it difficult to keep food prices in check, more so at times of domestic or international supply shocks.

The SBP has been raising interest rates since November 2021. Its key policy rate has gone up from 6.25pc (prior to the November 2021 monetary tightening) to 22pc. This massive interest rate tightening has enormously increased the cost of government debt servicing, forcing it to borrow more to service old debts and thus entering a debt trap.

It has also contributed to poorer performance of the industries and businesses operating in the formal sector. Large-scale manufacturing output fell 14.37pc in May 2023 and by 9.87pc in July-May 2022-23. Interest rate tightening has, however, contributed very little to check consumer inflation in the country.

In FY24, which started on July 1, containing food inflation remains a big challenge for the last few weeks of this government, for the caretakers who will oversee the next general elections due in October-November and for the elected government.

According to the latest PBS readings, the annualised increase in inflation measured through the Sensitive Price Index (SPI) stood around 29pc during the week that ended on July 13. SPI inflation, or inflation for the poor, represents the changes mostly in the prices of essential food items and a few energy products.

The breakdown of SPI inflation reveals a huge annual increase in prices of wheat flour (130pc), tea (102pc), rice basmati broken (77pc), rice Irri-6/9 (74pc) and chicken (56pc). Gas and electricity prices went up by 108.4pc and 14.6pc in just one quarter of the year.

Published in Dawn, The Business and Finance Weekly, July 17th, 2023