LAHORE, June 1: Prominent economist Dr Akmal Husain says the government will not be able to control the inflation rate by quick-fix solutions of raising the interest and revising the exchange rate without addressing the structural issues.

Speaking at a seminar on ‘inflation, economic measures and socio-economic growth’ here on Friday, he said growth was accompanied by inflation which affected income distribution and poverty. The GDP growth was sustainable only in case of reduced poverty and controlled inflation. He said that government claim about 7 per cent GDP growth was doubtful because 28 per cent investment rate was required for it. The investment rate was below 17 per cent but the government was claiming that it was 20 per cent.

He said the high inflation rate was manifestation of low investment which affected exports due to increase in cost of production and created the balance of payments problem with the passage of time. Interest rates were increased to slow down investment which eventually slowed down the GDP growth rate. The GDP growth rate was, therefore, not likely to be sustained due to inflation.

He said the inflation rate was only the tip of the iceberg. It would not be controlled by raising the interest and revising the exchange rate because it related to the structural problems of agriculture and manufacturing sectors. Framers were dependent on rainfall even in irrigated areas because the soil fertility had been reduced in the agriculture sector requiring more water for irrigation. Water deficit resulted in fluctuation in production.

Referring to the problems of manufacturing sector, he said that high electricity tariff had become the largest component of production cost and a major hurdle in growth. The industries using imported raw materials had to keep large inventories of raw material because goods took a long time in reaching the factories from Karachi due to poor infrastructure. For example, the goods took 18 to 19 days in reaching Gujranwala from Karachi. The cost of production of industries increased due to keeping large inventories of raw material.

Economist Dr Qaiser Bengali said inflation was a serious problem. The poor were finding it difficult to feed their families due to growing food inflation.

He said short-term measures like imports and penalizing shopkeepers could not solve the inflation problem.

He said inflation had its roots in the economic structure. The banks were concerned only with core inflation which did not include food inflation. The banks had earned immense profit from consumer financing and personal loans which had been instrumental in increase in inflation which affected those who were not entitled to such loans. Increase in non-development budget to Rs200 billion and allocation of Rs200 billion for the construction of the new GHQ building at Islamabad had also contributed to inflation.

He said hoarders and cartels were manipulating sugar and cement prices because the owners of cement and sugar mills were sitting in the government. No investment had been made in infrastructure for the past 25 years and power generation had not been increased even by one MW during the past seven years.

Punjab Finance Minister Sardar Hasnain Bahadar said that inflation was there without any doubt and the common man was being affected by food inflation. Seventy per cent population dependent on agriculture was not getting fair price of their produce. Farmers in his ancestral Rajanpur district were forced to sell wheat far below the support price. He said that the prices could not be controlled overnight because these were directly related to supplies.

Pakistan People’s Party (Parliamentarian) provincial president Shah Mahmood Qureshi said that the minister had expressed his inability to resolve the problem overnight despite the fact that the present regime was in power for more than eight years. The minister had blamed oil prices for inflation despite the fact it raised the prices with the increase in oil prices but provided no relief to the people when the prices fell.

He said the Federal Ministry of Finance Economic Adviser Dr Ashfaq Hassan Khan had accepted the existence of five to six per cent inflation whereas the actual rate was seven to eight per cent. He said that 13 to 14 per cent food inflation was the root cause of inflation which was affecting the common man. The prices of essential commodities had increased by 100 per cent but Prime Minister Sahaukat Aziz was boasting of making an economic miracle possible through macro-economic stability.