Pressure building

Published July 11, 2024 Updated July 11, 2024 09:06am
The writer is a business and economy journalist.
The writer is a business and economy journalist.

THERE is no precedent in our history of such a long and intense spell of inflation gripping the country. It has never happened before. Pakistan has had bouts of high inflation, with the last one running roughly from early 2008 to 2010 or so, depending on which metrics you use to measure its rise and tapering off. But the most recent bout began in May 2021 and is continuing unabated, despite what the measurement of the Consumer Price Index might be showing.

That is three continuous years with no end in sight. Not only that, if the last peak that inflation saw was about 20pc, this bout has seen it touch a peak above 30pc. Not only is the present bout of inflation longer in duration than any in the past, it is also more intense.

We have a new situation on our hands, because there is no model, no projection and no way of knowing what such prolonged exposure to such intense inflationary pressure can do to a populace. Already we are surrounded by anecdotes and stories told by those around us of electricity bills that are in excess of or equal to a household’s monthly expenses. But wait till the month of August. That is when the new electricity bills will start arriving, and for those who live on a salary, the new tax deductions will be applied. The pressures on household purchasing power are set to intensify further.

How far will this process go? The state is balancing its books on our backs, yours and mine. It is shedding its deficits and offloading them onto us instead. This is what they call ‘stabilisation’ in the sterile language of economics. For the rest of us, it simply means a severe eroding of our standard of living.

The inflation engulfing the country is no longer just an economic problem.

Since 2008 onwards, Pakistan has been under a virtually continuous stabilisation programme. I say ‘virtually continuous’ for a reason. There were a few years in between, from 2014 till 2017, and again from around 2021 till 2022, when a brief spurt of economic growth passed through our midst. None of those were real. They were fuelled by heavy borrowing, domestic and foreign, and both played a big role in creating the crash that followed.

I have written a lot about why this has been the case. For now, I want to draw your attention, dear reader, to this simple fact: Pakistan’s populace has been subjected now to the longest and most intense bout of inflation that it has ever experienced in its history. And it isn’t over yet.

The reason I want you to focus your mind on this is equally simple. We don’t know where the breaking point lies, and we certainly don’t know what happens when we hit that breaking point. A few countries offer some clues. Kenya, for example, saw the outbreak of large-scale rioting on the streets when the government rolled out an IMF-mandated budget laden with taxes and withdrawals of vital subsidies required to keep food prices in check.

But riots need not be the only expression of popular anger and desperation. A rising tide of street crime usually accompanies rising urban unemployment coupled with inflation. But beyond these more traditional outlets for the growing desperation lies a danger zone that we can barely imagine.

Economists do not have the models to tell you what sustained exposure to intense economic desperation can do to a populace. The consequences need not come overnight, as in Kenya where riots broke out almost immediately following the announcement of the budget. The slow burn of inflation can bring changes that we are not equipped to measure or detect. The vote that needed to be suppressed so ruthlessly in February this year is perhaps one example. It is easy to see where Miftah Ismail is coming from when he says the (real) outcome of the February election was actually driven by prolonged inflation.

But beyond protests and riots and petty crime and votes, the rising arc of desperation can also lead to conflict. People can turn on each other with bizarre justifications that don’t seem to connect with their economic circumstances in any rational way. They can turn towards faith healers and other quacks, whether for health advice, or advice on ‘get rich quick’ rackets, or even political and religious advice. What can follow is a train of consequences that leads in strange directions: the growth of bubbles and pyramid schemes or the spread of bad medicine or rising cases of domestic violence or the growing incidence of lynching and looting and other violent mob behaviour.

The state can no longer rely only on its repressive apparatus to keep the consequences of inflation in check. The personnel who staff this apparatus are themselves drawn from the general populace, and it is to the same general populace they return when they go home after performing their duties. Whatever happens to the people happens to them, unless the state tries to use its dwindling resource base to secure these personnel from the depredations of inflation. Doing so leaves less behind for others, and makes the situation worse by aggravating the inflationary fire rather than helping put it out.

The inflation engulfing the country is no longer just an economic problem. It is a danger to the social order. It is not clear when a tipping point will be reached, nor what it will trigger if and when it does arrive. I do not know any longer who I am writing this for. Those in power cannot be reached, and even if they could, there is not much they can do about it anymore. For the rest of us, however, it is worth bearing in mind that power in Pakistan is losing its grip.

The writer is a business and economy journalist.

khurram.husain@gmail.com

X: @khurramhusain

Published in Dawn, July 11th, 2024

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