PRICE INFLATION THREATENING THE ECONOMIC ACHIEVEMENTS
An upsurge in prices of petroleum products, natural gas and electricity with across-the-board impact on cost of production, transport and essential commodities
From SHAMIM AHMED RIZVI, Islamabad
Apr 24 - May 07, 2006
The hollowness of the oft-repeated claims of the Prime Minister that inflation had been contained and benefits of the economic growth have started to trickle down to the common man with a positive impact on purchasing power was fully exposed during the 3 day debate in the National Assembly ended Tuesday last.
Speakers one after another from both sides of the house bewailed the plight of the common man and challenged the claims about a strong economy that is leading towards prosperity to the people of Pakistan.
As this was not enough, the President, General Pervez Musharraf, during a briefing by the Governor State Bank of Pakistan in Karachi, bemoaned that the rising inflation was endangering the national economy. Perhaps the President did not believe the Governor SBP when she told him that the rate of inflation had slowed down as a result of anti inflationary measures taken by the government and the tightened monetary policies perused by the central bank. During his first visit to SBP head offices, since Miss. Shamshad Akhtar took over as Governor, President observed "the State Bank of Pakistan will have to take immediate and long term steps for resurrecting the situation and must devise a clear strategy to control inflation," economic gains will only be meaningful when they are translated into providing a better life for the common man," he said.
The President also advised the senior officials of the State Bank to devise a strategy to ensure that commercial banks share their huge profits with small depositors. He said there has been a general complaint by the depositors that they were getting negative return while the banks were making record profits for the last couple of years. Justice demands that the banks should increase the rate of return and share huge profits they were earning from the money of depositors. Banking spread has gone up to record high at 17.25 per cent while the average return on deposits is just over 3 percent. The low return is insignificant especially in the wake of 8.4 percent inflation rate, he added.
After 3 postponements earlier, the National Assembly finally took up the motion on Friday, to debate the "monster of price hike". After Friday it continued the debate on Monday and Tuesday last week. The 3-day debate on inflation and ever-rising prices of daily use should be an eye opener for the government. It was pointed out by member after member that the prices of edible items like sugar, cooking oil, pulses and milk and of building material were constantly on the rise. A speaker from the treasury complained about the concentration of wealth in a few hands and the exhibit lifestyle of the rich. Another blamed an unspecified "political lobby" for being responsible for the price spiral. A member accused sugar tycoons of pocketing Rs. 70 billion by artificially raising prices and the government of earning Rs. 18 billion in sales tax at the common man's expense. One speaker pointed out that poverty was forcing people to commit suicide. A treasury member urged the government not to behave "sheepishly" but act courageously to serve the people's interests.
How the members of the National Assembly not belonging to the elite class with vested interest, irrespective of party affiliation in the house, felt about the rising inflation and its impact on the common man can be assessed from following quotes from their lengthy speeches.
A good government is one that's policies bring prosperity to the people, but what about the present: inflation at 9.3 percent, trade deficit at 6 billion dollars now and expected to cross 10 billions by the close of fiscal year and 43 percent population submerged below the poverty line.
Pervaiz Malik warned of impending social upheaval triggered by widening disparity, and asked why our government has not been able to put in place "buffer mechanism' which helps overcome abrupt storages. Malik said the trade deficit is likely to be 10 billion dollars by the end of current fiscal which would make the dollar as expensive as Rs. 100. National will is absent from the place, and there is pro-rich policies.
Farooq Amjad Mir said the so-called trickle down effect of our government's economic policies has not yet materialized. Syed Bukhtiar Mani saw no point in discussing something over which the house had no control. But this was Khurshid Afgan whose understanding of the price hike turned many heads. "Don't disturb our rulers by discussing the prices of rice and sugar.
MQM's Kanwar Khalid Younis called for an immediate meeting of Prime minister's Price Commission, and said price hike is far more hurtful in cities than in villages. Prices are not coming down because of a powerful political lobby is busy frustrating moves to bring them under control. He also talked of the third sector, that is the armed forces run industries where effecting controls is next to impossible.
PPPP legislator Chaudhry Manzoor Ahmed questioned the economic philosophy of the government while arguing that economic growth did not bring any positive impact on the common man. He said due to economic policies of the present government suicides by economic factors are increasing.
He said according to international studies, around three to four million people of the country became poorer in 2004-05. He argued that if the rising trade deficit was not arrested the government would have no choice but to devalue rupees, which will bring more inflationary pressure on common man.
Chaudhry Manzoor Ahmed said that price hike is always the direct outcome of a government's policies, and why not it should be the case here also, he asked. If big growth were believed to cause trickle down to less privileged that has not happened in Pakistan, he said, adding this concept is fundamentally flawed. In fact, it leads to greater disparities, so much so that if growth were 10 percent the share of the poor in that would be no more than 0.25 percent. He lambasted the government for the ongoing sugar crisis that has diverted something like 50 billion rupees from the common man to sugar mill owners. The official mechanism to control prices has disappeared from the scene, Manzoor said and added while direct tax net covers only 56,000 the whole lot of the rest of the people are subjected to indirect taxation, which is becoming harsher by the day. He said trade deficit is growing and may be manageable as long as money diverted from privatisation is available but what after that when all national assets will have been sold out. Pakistan today needs a Chavas (of Venezuela) who can give the people what are theirs, and not this 'imported' leadership.
An upsurge in prices of petroleum products, natural gas and electricity with across-the-board impact on cost of production, transport and essential commodities has come at a time when the official inflation rat is getting closer to double digit figure the government is losing its credibility in the face of the rising cost of living. Prices of various commodities used by the common people unrelated to cost of energy are also rising with no effective step being taken by the government to reserve the trend.
The government seems to be indifferent to the plight of the poor and the middle class who find it increasingly difficult to make both ends meet with soaring prices of food stuff, including wheat. The problem is getting serious day by day. The reasons for high prices are many and varied, starting from a monetary policy which has failed to check rapid growth in private sector credit, a part of which is being extensively used for hoarding commodities and in speculative investment in stocks and real estate.
In March 2005, Prime Minister Shaukat Aziz formed a 12-member price committee headed by his adviser on economic affairs to constantly monitor the price situation in the country and suggest timely remedial measures. The committee has however miserably failed to achieve any of its objectives. It was nowhere visible in the crises of exorbitant increase in sugar and cement prices last month. Lately, there have been indications that the prices of edible oil might also go up which will, if it so happens, put some extra burden on the consumer. It will, therefore, be quite helpful for the government price committee to enter into a dialogue with all the stakeholders and explore ways to ensure stability in edible oil prices.
The Asian Development Bank, in its last quarterly report on Pakistan Economy, had warned the Economic Managers of Pakistan that rising rate of inflation will make the economic growth meaningless as far as the common man in concerned. The Bank experts rightly advised the government to immediately take effective measures to control the monster of inflation. Unfortunately, the government did not pay due attention to the advise.
Under the circumstances, it is not possible to agree with the Prime Minister that Pakistan in witnessing a rising, vibrant middle class.
With static wages and the prices practically going through the roof the only trend, the middle class is found registering in one of the withering away. As warned repeatedly, this trend will eat away the only engine of long term real growth. The government is advised to put aside the pursuit of impressive statistics and concentrate on improving the fast deteriorating living standard of the common man. A high growth drive that benefits a few and makes life unaffordable for the many cannot keep kudos coming for long. So far, the economic turnaround has benefited only to the upper class, those with the capital to invest and reap dividends. It is warned that with the vast majority's disenchantment continuously increasing, the government's problems will only grow.
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