The PTI leadership woke up to harsh realities when food prices shot up by over 20 per cent as a result of shortages, market manipulation and smuggling. Prime Minister Imran Khan acknowledged that the recent hike in prices of essential commodities and their shortage was a result of government neglect.

Mr Khan says his government is trying to put a system in place to anticipate such a situation. The crux of the problem in official policymaking is that it depends more on a reactive and less on a proactive stance. Issues are allowed to turn into serious problems or crises because there are winners and generally not-so-influential or voiceless ill-organised losers in a given set of policies. To solve problems so created, reactive policies are put in place only when subjected to popular backlash or sectoral crises.

No strategy creates a win-win situation for all, expands the space for the common good, and ­— to pick up a phrase from the book Justice by US philosopher Michael J. Sandel — promotes “shared democratic citizenship.” For such a transformation a proactive policy is required.

Cost-push inflation has benefitted few — including the government and banks — and hurt many. The bulk of the increase in tax revenues has come from inflated prices of goods and indirect taxes.

With fiscal risks still haunting the country’s economic team after 18 months of strenuous efforts, the situation is entering the realm of politics

The high discount rate and rupee depreciation, contributing to cost-push inflation, have helped banks make money. The policy rate at 13.25pc is linked to headline inflation and not to core inflation — now at 8pc — as was the normal practice. The exorbitant cost of debt servicing on government borrowings is paid by the taxpayers’ money. A sizeable portion of the government revenue is also eaten up by loss-making state enterprises. With fiscal risks growing, the Ministry of Finance (MoF) has indicated that cuts in development spending may not be ruled out.

Hit by the high cost of inputs, shrinking consumer purchasing power and underutilisation of industrial capacity, producers and suppliers try to pass on the costs to domestic consumers. They also benefit from the rising prices of existing inventories.

Though the country may not have earned enough dollars, huge devaluation has helped export industries earn more rupees through increased volumes. But cost-push inflation and lower domestic demand have also reportedly led to the closure of some factories, creating unemployment.

The worst hit by the double-digit inflation coupled with the alarming increase in food prices are blue-collared workers, peasants, those in fixed income groups like the salaried class, the growing number of unemployed and those whose wages have been reduced owing to the downturn in the economy both in real and nominal terms. Only a small fraction of those thus impacted on a mass scale are compensated by social safety nets.

The impoverishment of the vast majority of consumers means reduced domestic demand and delayed economic recovery. There is no sign as yet that recovery could either be investment-led or export-led in the immediate future.

Speaking at a dinner he hosted in the honour of President Dr Arif Alvi and his wife, Nishat Group Chairman Mian Mohammad Mansha said: “the business community needs to be provided with an enabling environment, one that is free from harassment, intimidation and bureaucratic bottlenecks, so that they can concentrate and dedicate all efforts towards generating economic activities without which, neither growth can be achieved nor jobs can be created for our youth.” Many development experts believe that long-term economic growth is best served by maintaining price stability.

No strategy creates a win-win situation for all, expands the space for the common good and ­promotes ‘shared democratic citizenship’

In the past, as a rule of thumb, economists in Pakistan used to say that a fiscal deficit above the range of 5-6pc starts hurting the economy. The MoF’s latest projection is that the current fiscal year will end with a fiscal deficit of 7.5pc against the earlier forecast of 7.1pc. The Mid-Term Review of the Budget 2019-20 has identified major fiscal risks facing the stabilisation programme that include a substantial fall in the tax revenue, unexpected levels of public debt and the financing of fiscal deficit.

In the United States, inflation levels of 1-2pc are generally considered acceptable and an inflation rate greater than 3pc represents a dangerous zone that could cause the dollar to be devalued. With the inflation rate running in double digits in Pakistan, no wonder the MoF sees “unexpected volatility of the exchange rate” as a threat to the economy.

The PTI government has taken or mulling a series of measures to control the increase in price and generate economic activities, some of which will result in a pause in the stabilisation programme. For example, gas and electricity rates have been frozen until June. The ministries of petroleum and power have been tasked to come up with a comprehensive plan on how taxes on utility bills could be withdrawn to provide relief to inflation-hit people. Earlier this month, the prime minister told a delegation of foreign investors that his government is now focusing on socio-economic growth.

Almost 43.7pc higher revenue was collected on key oil and gas products during the first half of the current fiscal year when compared to the same period last year, despite a 10pc drop in domestic production and a 20pc fall in imports. That explains the further increase in prices of commodities as a result of the higher cost of production and transport charges for the movement of goods across the country both for domestic consumption as well as exports.

While the stabilisation programme and structural reforms have yet to pick up momentum, the economy has slid into stagflation. Dr Abdul Hafeez Shaikh says that the tax revenue target has not been met because of a slowing economy including import contraction, the lower consumption of petroleum products, underperforming auto industry and a challenging budget target. The Federal Board of Revenue is reported to be persuading the International Monetary Fund mission to revise downward the revenue target to Rs4.8 trillion.

With fiscal risks still haunting the country’s economic team after 18 months of strenuous efforts, the situation is slipping out of the hands of technocracy into the realm of politics.

Published in Dawn, The Business and Finance Weekly, March 2nd, 2020