INFLATION & SECURITY CONCERNS AFFECTED EID CELEBRATIONS
Sep 12 - 18, 2011
Though Pakistani Muslims celebrated their Eid festival with traditional fervor on August 31, yet the soaring inflation and worst law and order situation affected their Eid preparations and shopping.
Soaring inflation has weakened the purchasing power of the people. The consumer price index (CPI) inflation rose to 13.77 per cent in July over the corresponding month last year.
Inflation, which is the second-fastest inflation after Vietnam in Asia, picked up as food prices up by over 17.58 per cent in July making eatables dearer for consumers.
The people cannot afford to expend on Eid preparations when they are not even able to meet their food expenditures. Over 40 percent of country's population is living below poverty line and this bulk of population is not able to celebrate Eid with new clothes and shoes.
Security concerns and the high prices of basic food commodities have surged to an extent that the low-income people had no more choice but to slash down several items during Eid shopping.
In an incident of terrorist attack in Quetta on Eid day, at least 10 people were killed and dozens of people injured. The people in Karachi- the country economic and business hub- were facing not only the inflation but also the menace of extortion, target killing and violence that virtually killed the sprit of Eid shopping. Karachi witnessed a dull and slow shopping trend in major markets, as the people were feeling insecure and vulnerable. Lawlessness rules supreme in the country's largest city and commercial capital where over 100 people were killed in politically and ethnically motivated violence in August. The government struggles for solutions to the unrest, as Karachi, which accounts for around a fifth of the country's GDP, continues to bleed.
The government has projected an inflation target of 12 per cent for the current fiscal year, which seems to be missed because of rising food and fuel prices.
'Inflation will remain above 15 per cent for the next six months largely driven by bad governance and food, utility and oil prices,' according to a survey report of Pakistan Institute of Development Economics (PIDE). Persistent high inflation, policy credibility and prevailing law and order situation are the major sources of public expectations about future high inflation.
The PIDE's report negates the government move of taming inflation through high interest rates but said the inflation will remain above 15 per cent against the projected target of 12 per cent this fiscal year.
Last month, the government increased the prices of petrol, diesel, and gas at a time when the country is facing a very high inflation rate, especially in food items. Critics say that government's recent decision to increase gas prices by 13.5 percent has bombed the manufacturing sector and public, as it is unbearable and unacceptable for everyone.
Swelling government borrowing has also fueled inflation. It is for the first time in the history that Pakistan's total domestic debt has crossed 6 trillion rupees mark. The stock of domestic debt shot up by Rs1.360 trillion to new peak level of Rs6.143 trillion as on June 30, 2011 as compared to Rs4.654 trillion on June 30, 2010.
The country's overall stocks of domestic debts registered a cumulative growth of 29.22 percent during the last fiscal year 2010-11, which ended on June 30, as compared to fiscal year 2009-10, according to the State Bank of Pakistan (SBP).
The domestic debt grew at an alarming pace, as the cash-strapped government used domestic banking sources as the only option of borrowing after the International Monetary Fund (IMF) stopped loaning to the country last year and other international financial institutions including World bank and Asian Development Bank also halted their loan programs over the country's inability to implement economic reforms. Despite persistent warnings from the central bank, Pakistani government could not reduce its rising expenditures and continued to borrow from the central bank. The release of last two tranches of $1.74 billion each by IMF has been delayed for the seventh time because of the non-fulfillment of pre-conditions laid down by Fund for the release of funds under the deal signed in November 2008. By November 2009, the country had been indebted under foreign loans to the tune of Rs6,250 billion. The country's foreign debt now stood at Rs9,550 billion which means that it swelled to Rs3,050 billion in only two years.
In case of new loan request, the IMF would likely to put forward a proposal before Pakistan that surplus cash crops should be kept under the IMF supervision besides taking a tougher stance for complete end of subsidy on power and lowering of financial deficit.
Since 1988, Pakistan has sought bailouts from the IMF 11 times and failed to complete all but only one signed in December 2001, which was completed ahead of schedule.
Pakistani rupee slid to a record low in the inter-bank market against the US dollar this week. It is presently traded as high as Rs87.3 against the dollar. The currency dealers predict that the market would remain volatile in coming days and local currency may witness further erosion.
The analysts attribute the rupee's record slide to the import payments, negative sentiment about the country's economic outlook and stalled IMF bailout program. The dealers believe that increased dollar demand has pushed the rupee lower, while fears of portfolio outflows has shattered the investors' sentiment. Other factors that weakened the rupee include import payments, swelling government borrowing, and the country's gloomy economic outlook.
While the higher remittances saved the country to face current account deficit, it also increased the saving rate in last fiscal year 2010-11 despite double-digit inflation, according to the central bank. The remittances from overseas Pakistanis rose to a record $11.2 billion in the fiscal year that ended on June 30, an increase of 25.77 percent from the previous year. The national saving rate increased to 13.8 per cent of gross domestic product (GDP) largely because of surge in remittances.
Critics say that saving rate is still much lower than a sound level that requires protecting the economy as well as financial system from vulnerability. Whatever is being saved in financial institutions, critics contend, is being invested in government papers that is non-productive and does not help the economy to perform better.