ISLAMABAD, Dec 19: The government has assured the International Monetary Fund (IMF) to take more measures to bring down inflation from 8.4 per cent to 8 per cent by the end of the current financial year as it is still hurting the common man in the country.
Informed sources told Dawn that the Fund officials were assured that the average inflation rate for 2005-06 was likely to be less than 8 per cent by June 30, 2006 due to the base effect viz- a-viz oil prices.
Since IMF’s assessment on Pakistan’s economy is taken seriously by international lending agencies including banks, the government wanted to further reduce inflation, particularly the Consumer Price Index (CPI).
Some of the government officials, sources said, agreed with the IMF that the food prices, administered prices, wages and import prices were the source of inflation. For example, increasing food prices are considered to result from short supply on account of concentrated land ownership.
According to the IMF, the government also needs to review its policy of offering wheat support price regularly to the farmers as it is one of the causes that has been accelerating inflation during the last many years.
The government, sources said, has been asked to keep a vigilant eye on monetary factors that were the main drivers of inflation in Pakistan, while the wheat support price has a direct short term impact on inflation.
When contacted Economic Advisor to the finance ministry Dr. Ashfaque Hasan Khan, said that the government was very much concerned about inflationary pressures and was taking appropriate measures to bring a downward trend shortly.
The inflation, he pointed out, as measured by CPI, has averaged 3.8 per cent during the last five years but jumped to 9.3 per cent last year which was the highest in last 8 years.
He said several factors contributed to this sharp increase in inflation rate, prominent among these, included massive consumer spending owing to three years strong economic growth which created shortage of essential consumer items. Sharp increase in the wheat support price and unprecedented rise in international oil prices resulted in increase of inflation rate, he added.
“Interestingly, inflation peaked in the month of April, 2005 reaching a record high of 11.1 per cent, the highest in the last 68 months”. Such a sharp rise in inflation was mainly on account of extra rise in food inflation which touched 15.7 per cent. Accordingly, the government took a series of measures to counter inflationary pressures.
The State Bank of Pakistan (SBP), Dr Khan said, resorted to aggressive tightening of monetary policy to shave of excess demand from the system. On the supply side, the government liberalized the import regime and allowed duty free import of essential items such as wheat, wheat flour and sugar.
In order to provide relief to the general consumers, the government started offering wheat flour and sugar on prices, much lower than the market prices, through the outlets of the Utility Stores Corporation. These measures, he said, have salutary effect on the overall impact of inflation in general and food inflation in particular.
Since April 2005, Dr Khan said, the overall inflation has been gradually reducing to 7.9 per cent in November 2005, and most importantly, food inflation was down from 15.7 per cent to 5.8 per cent during the same period.
During the first 5 months of the current financial year, the economic advisor said, inflation is averaging 8.4 per cent and during the remainder part of the current fiscal year, it is expected to further go down, he added.
