Despite the government efforts to control inflation Finance Minister Shaukat Tarin concedes that prices are still high and affecting the common man.
To alleviate the sufferings of the vulnerable, he told a news conference while launching the Pakistan Economic Survey 2020-21 that “we will intervene and take care of the poor.”
The headline inflation measured by the Consumer Price Index (CPI) declined to 8.6 per cent during July-April against 11.2pc in the same period last year, according to the survey document. However, in May the inflation rate rose to 8.9pc against the annual target of 6.5pc.
An Ipsos survey conducted on June 8 showed that since August 19, 2019, inflation has remained the topmost concern of the common citizens, closely followed by unemployment and then poverty, electricity prices and increasing burden of taxes etc. Eight out of 10 people feel less confident about their job security.
Pakistan’s poverty levels are determined by the interplay of economic growth rates, inflation and employment levels
Mr Tarin explained that the country had become a net importer of agricultural products and the prices were bound to go up due to a surge in prices in the international market. He quoted comparative prices of various prices and observed that the increase in domestic prices was, however, far less than the international prices.
The finance minister wants to tackle inflation by enhancing domestic production and that is why, he says, the next year’s budget focuses on agriculture. Though the annual target was met, the growth of 2.8pc in agriculture was slower than 3.3pc of last year.
In the meeting of the National Economic Council earlier this month, the advisor on reforms Dr Ishrat Husain is reported to have argued that adequate measures have not been taken in the development strategy to contain inflation and address issues of unemployment.
To quote research reports, Pakistan’s poverty levels are determined by the interplay of economic growth rates, inflation and employment levels. As far back as June 2015, an International Monetary Fund study titled Causes and Consequences of Income Inequality —a Global Perspective rejected the ‘trickle-down theory’ and demonstrated that “increasing the income share of the poor and the middle class actually increases growth while the rising income share of the top 20pc results in slower growth.”
In Pakistan despite the liberal stimulus package, growth in private sector investment was only 6.6pc this fiscal year against 10.3pc in the comparable year 2018-19. In fact, the total investment-to-GDP ratio has declined slightly from15.3pc in 2019-20 to 15.1pc marked by a sharp drop in foreign direct investment
Mr Tarin says the common man has been crushed by the stabilisation programme and promised dreams of trickle-down benefits of economic growth.
He told a journalist recently that “once the small- and medium-sized enterprises start to grow as well, once the supply chains for large scale manufacturing start to pick up and once housing construction gets going, that is when the real impacts begin to be felt by the common man. At the moment the construction of housing stock has not begun. That will come in six months to a year.”
Dwelling on the employment situation he said 52 million people were back to work in October 2020 after Covid-19 and only 2.5m were left unemployed. But about two million people enter the job market every year.
While the policymakers have been trying to evolve, as they say, the ‘bottom up’ strategy it looks puzzling that poverty figures were not published in the survey document. The United Nations multidimensional poverty index shows 38.3pc at the poverty level.
The survey did acknowledge that the country was facing difficulties in optimal social spending such as health care, education and housing etc.
There is also a view that the skewed structural distribution structure and policies are the major reasons for common citizens’ plight and lower growth rate. The survey document reveals that in the past two years, tax exemption hit the record of Rs1.34 trillion in 2020-21, up from Rs972.4 billion in 2018-19. The real beneficiaries have been the rich.
Production and growth economists point out that the mode of distribution cannot be overlooked. “The evidence is unmistakable and the conclusion is inescapable: a divorce between production and distribution policies is false and dangerous. The distribution policies should be built in the very pattern and organisation of production”.
That was what Dr Mahbubul Haq wrote in 1972 after the 1971 tragedy and is quoted in a recent article by economist Arshad Zaman — something which he says is no less relevant today.
Published in Dawn, The Business and Finance Weekly, June 14th, 2021