Nov 29 - Dec 5, 2010

Eid-ul-Azha, the Muslim festival is marked by the ritual sacrifice of sheep, goats, cows and other livestock whose meat is then shared with the poor. Unprecedented rise in livestock prices disappointed most of the Pakistanis to celebrate Eid ul Azha with the traditional animal sacrifice this month, as cattle prices have more than doubled after two months of catastrophic late summer flooding swept hundreds of thousands of animals away.

More than half of the Pakistani Muslims were not able to sacrifice animals on Eid, which fell from November 17 to 19. Livestock traders gave shortage of animals as the major reason for the soaring prices of cattle on Eid. Critics blame the government for failing to place an effective price control mechanism, which could restrict the livestock traders from demanding their own high prices. Some analysts believe that besides the country's fatal floods, large number of animals are being smuggled to the neighboring Afghanistan where cattle fetch even higher prices as livestock is in short supply all year round in the war-torn country.

Livestock prices had almost doubled, bringing unwelcome news for the millions of Pakistani Muslims preparing to celebrate Eid-ul-Azha. The prices of goats and larger animals have increased by 25-30 percent since last year.

The average price of a goat has climbed to 21,000 rupees (US $250), according to an AFP survey of markets in five cities across Pakistan a sum far too high for most families in the impoverished and largely rural nation. Sheep are fetching the equivalent of between $175 and $300 and the price of an average cow is $400, while the more highly-prized bulls were being sold for up to $1,100. The government's fixed wage for a laborer is just $80 per month, while an average middle-class salary is about $230 per month. Islamic charities have been offering families a share in a collective sacrifice for about $100, itself a hike from only $65 to $85 last year.

The cattle prices this year are higher than before, due to devastating floods which swept across much of the country in August and September, killing many animal herds.

More than 300,000 cattle died in the devastating floods that hit the south Asian nation in late July, according to Pakistan's National Disaster Management Authority.

Countrywide livestock losses were estimated at around Rs250 billion, according to data released by Dairy Pakistan in collaboration with the United Nations' Food and Agriculture Organization. In Khyber-Pakhtunkhwa, more than 72,862 large animals (cows and buffalo) and 20,364 small animals (goats and sheep) perished, while in Sindh 211,902 cattle died.

High cattle prices in the market pushed customers towards establishments that sell animals on the basis of weight. Sellers claim that the recent floods have caused so much devastation of livestock that prices of sacrificial animals were bound to rocket. However, Dairy Pakistan officials reportedly said that losses accounted for only about six per cent of the total livestock in the country. They also asserted that fatalities were significantly lower in smaller animals as these herbivores graze in drier areas away from rivers and lakes.

The Asian Development Bank and World Bank assessed that the floods damaged property, infrastructure, and crops to about $9.5 billion, while the government estimates a loss of $43 billion.

The central bank estimates some 40 percent of population in the country lives around the poverty line. The prevailing level of poverty incidence in the country will further deteriorate as a result of flood as it has adversely affected livelihood, especially of rural population, along with huge damage to agriculture land, and infrastructure.

Poverty ratio in the country is rapidly rising due to economic slowdown, high inflation and reduction in subsidies, and the poverty ratio during the last fiscal year 2010 surged by some four percent to 40 percent, as it stood at 36.1 percent in 2009.

Relying heavily on foreign aid, the country's balance of payments is still vulnerable and the country is committed to $11 billion loan programme of International Monetary Fund (IMF) agreed to in November 2008. Analysts believe that the government income in the form of taxes has significantly reduced due to worst floods and the government is forced to borrow from the financial market to meet its every day business.

The country direly needs additional international aid flows, increased revenue targets and more drastic cuts on development and current expenditures, as the country's financial requirements have gone up tremendously in the aftermath of devastating floods.

The government's inability to control its increased borrowing for current expenditure may push Pakistan into a prolonged spell of stagflation.

"There is a serious threat that the Pakistan economy could get entrenched into a prolonged and deep stagflation unless decisive and concerted action is taken by policy makers", said Pakistan Institute of Development Economics (PIDE), a state-run think tank, in its monetary policy viewpoint. The real challenge, therefore, is to draw up a co-ordinated strategic response to break out of stagflation by rekindling growth and checking inflation.

Some analysts fear that a likely increase in the electricity tariff, induction of the reformed general sales tax (RGST) and continued reliance of the government on bank borrowings will only add to the uncertainty surrounding inflation expectations.

The government is unlikely to meet the single-digit inflation target of 9.5 percent set the current fiscal year 2010-11 amid post-flood economic scenario. The country's central bank has already indicated that the average CPI inflation for current fiscal year may fall between 13.5 and 14.5 percent. Local analysts argue that in the aftermath of the floods, bringing inflation down to a single-digit would require supportive and sustained financial and fiscal efforts over the next couple of years.

The country's headline inflation hit a 17-month high of 15.71 percent year-on year in September owing to the impact of devastating floods, which resulted in a sharp increase in the prices of basic food items.

The analysts forecast that the inflation pressure would continue in November as the government has increased the petroleum prices. The government increased prices of petroleum products by up to nine per cent from this month. The price increase is expected to push up overall inflation rate and the cost of industrial production that has already been under pressure because of higher electricity and gas rates and huge energy shortfalls.

The average consumer price index (CPI) is estimated at 16.25 percent, owing to higher prices of food, electricity, and petroleum products. Analysts argue that the headline inflation growth is estimated at around 16 percent Year-on-Year in October that may force the central bank to further enhance the key discount rate by 50 basis points.

Some analysts however do not see the floods as the only reason for rising inflation as they consider continuing fiscal imbalance and consistent power tariff increase as other important reasons triggering inflation in the south Asian country.