Trade Chronicle Sep - Oct - 2020 issue

TRADE CHRONICLE
Editorial Comments
High inflation needs to be controlled
The incumbent government of
PTI in Islamabad faces several
multidimensional challenges on
political and economic fronts since
the very first day after taking the oath.
The substantial foreign & local debts,
growing trade and current account
deficit remain the points of concern,
in addition to burgeoning circular
debt of the energy sector and fragile
economy – making the uphill task to
the government to deliver as per their
manifesto. Subsequently, the spread
of COVID 19 was the last straw on the
back of the economy.
The burning issue for government
is inflation and how to control it.
Pakistan is facing the highest level of
inflation, which was 4.53% in 2014-15,
and rose to 11.1 % in 2019-20. During
this period, greenbacks have also
witnessed a 64 percent appreciation,
causing manifolds increase in the
cost of raw materials, and finished
goods, particularly the crude oil and
products—the main culprit in inflation.
Now prices of essential food items are
beyond the affordability of the people.
Nevertheless, recent unprecedented
increase in prices of sugar, wheat
and other household’s kitchen items
have made the life of masses more
miserable. These prices have gone up
apparently due to an acute shortage
of supply. The reason is that some
of these items
were allegedly
stored by
profiteers to
make money. On
top of that, the district administrations
could not take any timely action
against the real culprits, and only
penalized poor vendors on the roads.
It is good that finally, the government
has realized the situation and taking
measures in the right direction.
However, in experts opinion, the
government needs to devise an
effective strategy to achieve the right
balance between supply and demand
in the market, and it should take steps
to increase the production of essential
food items to meet any food crisis in
the future. Without sound economic
policies and robust planning,
controlling prices and dealing with the
shortage of food items can hardly be
achieved.
However, on positive development,
the government had initiated inquiries
against sugar mafia and wheat
hoarders, and the result is yet to be
felt by the consumers. The import of
sugar and wheat will hopefully bring
the commodities prices in the reach
of common men, we think. Also,
the government should start taking
concrete measures to provide some
relief to the people instead of accusing
the predecessor governments of all
the ills being faced by the country.
For all other commodities, the state
should have kept an eye on hoarders,
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manipulators to ensure sustainable
supplies in the market (some of the
hoarders and manipulators were
identified in the wheat and sugar
reports).
It is a pity that Pakistan being an
agriculture-based country is still
import essential commodities to meet
its requirement instead of growing it
locally. Although Pakistan was once
ranked a country 4th among cottonproducing
and 3rd in terms of quality
behind Egypt and America worldwide,
it is now forced to import it.
In the future, experts expect inflation
to somewhat ease off in the coming
month, as reflected in the recent SPI
numbers. Two factors supporting
experts call of contained inflation in
short-to-medium term are i) Expected
reversal in volatile food prices (staple
goods mainly) on improving supply,
and ii) lower international oil prices
which have been a breather to the
upside risk to the energy component
of inflation. However, upside risks
to inflation include: any upward
adjustment in electricity price (fuel cost
adjustment and base tariff hike), and
any other condition (such as removal
of subsidies) put forward during Pak/
IMF talks. Economic experts believe
average inflation for FY21 will remain
in the single-digit, around 9.9%.
Monetary Policy meeting, which is due
in November, is expected to keep the
policy rate unchanged at 7% to boost
the aggregate demand in the economy.
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TRADE CHRONICLE - Sep - Oct - 2020 - Page # 5