THE finance ministry’s projection of 15pc inflation, much higher than the targeted rate of 11.5pc, during the new financial year, is perhaps the first official admission of the potential impact that fiscal stabilisation will have on the lives of most Pakistanis. The tough economic conditions will not only kick up inflation, they will also slow down the growth rate and lead to higher unemployment going forward. Many would argue that the inflation estimates are still on the lower side considering the elevated global energy and other commodity prices that the government has to pass on to consumers to stay solvent. The monthly economic update and outlook report for June released by the finance ministry concedes that the interest rates will also have to be jacked up further in the near term. But the monetary tightening is unlikely to have any significant effect on the inflation outlook. The reasons are obvious. Much of the domestic inflation is being produced by rising costs of energy, food and industrial raw material that we have to import to meet local demand.

To say that the coming months will be extremely tough for Pakistanis, who will see their incomes erode and living standards decline further, does not capture the current impact of the deteriorating macroeconomic imbalances on the lives of low- to middle-income groups. A report, for example, has recently pointed out that the reversal of oil subsidies since May has led to increased school dropout rates among female students. The last three years of two-digit inflation have already led most households to cut back on health and other essential expenditure and compromise on the quality of food. True, the government does not have any control over exogenous factors such as global commodity markets and the ongoing Ukrainian war that are responsible for the elevated energy prices and supply disruptions. But it could have mitigated the adverse impacts of external shocks by putting its fiscal house in order, scrapping wasteful expenditure and pursuing prudent growth policies.

Published in Dawn, July 1st, 2022