Premium Content

Addressing Soaring Inflation to Uphold Economic Stability in Pakistan through Budget

Print Friendly, PDF & Email

Zafar Iqbal

Addressing Soaring Inflation to Uphold Economic Stability in Pakistan

Inflation refers to the sustained increase in the general price level of goods and services in an economy over a period of time. When inflation occurs, each unit of currency buys fewer goods and services than it did before. This means that the purchasing power of money decreases, leading to a reduction in the standard of living for the general population. Inflation can be caused by a variety of factors, including an increase in the money supply, demand-pull inflation due to increased consumer demand, cost-push inflation due to rising production costs, and built-in inflation resulting from expectations of future inflation.

Controlling inflation through a budget is of paramount importance for maintaining economic stability and safeguarding the welfare of the population. A budget plays a crucial role in managing inflation by regulating government spending, taxation, and borrowing. Through a well-structured budget, the government can implement measures to curb inflationary pressures and promote sustainable economic growth. Inflation erodes the purchasing power of money, leading to uncertainty and volatility in the economy. Through a budget, the government can implement policies to stabilize prices and prevent rapid fluctuations in the price level, thereby fostering confidence among consumers and businesses.

High and volatile inflation disproportionately affects low-income households, pushing many below the poverty line. According to recent data, inflation has led to a [specific percentage] increase in the cost of living for low-income families, making it harder for them to meet their basic needs. By controlling inflation through a budget, the government can mitigate the adverse impact on vulnerable populations and work towards reducing income inequality.
Excessive inflation can deter long-term investment as it reduces the real return on investment. A well-managed budget that controls inflation can create a conducive environment for investment, spurring economic development and job creation. Inflation can dim the competitiveness of a country’s exporCompetitivenessroduction costs. By controlling inflation through a budget, a government can ensure that domestic industries remain competitive in the global market, supporting economic growth and foreign trade.

A budget serves as a tool for enforcing fiscal discipline by aligning government spending with available resources. By controlling inflation through a budget, the government can avoid excessive monetary expansion and unsustainable deficits, which can exacerbate inflationary pressures. This aligns with the government’s broader economic goal of [specific goal], as it ensures that the economy remains stable and sustainable. Therefore, controlling inflation through a well-crafted budget is instrumental in promoting economic stability, enhancing the welfare of the population, and fostering sustainable growth. By formulating and implementing anti-inflationary policies within the budgetary framework, governments can mitigate the adverse effects of inflation and steer the economy towards a path of stable prices, increased employment, and improved living standards for the citizens.

The prevailing inflationary trend in Pakistan is not just a concern, but a pressing issue that is increasingly pushing a significant portion of the population below the poverty line. This situation is not to be taken lightly, as it mirrors the conditions in sub-Saharan Africa, with an estimated 40 per cent affected demographic. As the nation gears up for the budget of 2024-25, the focal point of concern should revolve around formulating and endorsing anti-inflationary policies that are universally acceptable, particularly to multilateral and bilateral donors like the International Monetary Fund (IMF). Essential to this is the faithful execution of these measures, considering the historical trend of budget overestimations and subsequent severe cuts to development allocations, a practice that directly contributes to the country’s inflationary conditions and reflects an elitist control over its limited resources.

Pakistan has been grappling with double-digit inflation rates since May 2022, reaching a peak of 38 percent in the preceding year. The decline has been gradual, with the Consumer Price Index (CPI) easing to 11.8 per cent in May 2024 from the previous peak. However, the average inflation rate of 24.52 percent during July-May 2024 is a heavy burden for the general populace. Moreover, the recent decrease in CPI, surpassing the core inflation, has raised concerns among economists due to its potential underrepresentation of actual inflation. This discrepancy primarily stems from inadequate factors in the CPI formula and weighs disproportionately allocated to certain essential items, which fail to reflect the spending patterns of lower-income groups accurately.

The detrimental effects of high inflation on the impoverished populace are further exacerbated by the increasing unemployment resulting from the closure of private sector units. While the government does revise the minimum wage periodically, this increment primarily benefits formal sector employees, leaving a significant portion of the labor force, particularly those in the informal economy, unaffected.

Donors are more likely to support three key anti-inflationary measures that have been initiated since 2019. These measures, if implemented effectively, can bring about significant positive changes, offering a ray of hope in the face of inflation. This includes maintaining a high discount rate to generate a positive real rate of return, stringent adherence to full cost recovery for electricity and gas, and upholding ambitious revenue targets without reducing indirect taxes. Despite the resistance from influential groups, the government must consider curbing current expenditure, potentially through a wage freeze and deferment of procurements for the upcoming fiscal year.

In conclusion, the upcoming budget must not only avoid perpetuating exorbitant current expenditure but rather strive to reduce it. By doing so, the government can create fiscal flexibility and bargaining power, ultimately leading to more favorable outcomes for the populace. We earnestly request for your support and commitment to these measures, as they are not just important, but crucial for their successful implementation. We look forward to your active involvement in this endeavor.

Leave a Comment

Your email address will not be published. Required fields are marked *

Latest Videos