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Why Pakistan must make fighting inflation its top priority

It is a 9-letter word and baffles every government in power but last week Pakistan’s prime minister Imran Khan had to solicit the nation’s help to combat it effectively.

Inflation has now become a topmost concern of a government that finds it both a pulsating headache wrecking its PR with the population and an opportunity to also improve its ratings.

While the government’s own assessments and those of the international lenders still put it in single digits, that does not offer any solace to those at the receiving end of its eventual impact. More to the point, rise in the cost of living is not just a one time-affair. It is a dynamic challenge that rattles the public constantly and attacks their shoestring budgets from different directions.

Supply and demand forces

Some of the inflationary pressures are built into Pakistan’s ongoing programme with the International Monetary Fund that requires it to remove all subsidies and allow supply and demand forces to determine prices.

Long used to government postponing tough decisions on passing the burden of actual cost (for example electricity production), the public does not take kindly to it.

The more so since they see much of the burden of the power sector (known as circular debt in which the entire institutional chain of production and distribution owes money to each other and therefore none gets paid in time) being the result of long-standing mishandling of the energy deals and their rich-protecting, poor-grinding clauses.

On fuel, the government picks up a hefty share of surcharges, which remains an easy windfall for cash-strapped planners who are not willing to let go off for the benefit of the people.

Expensive fuel and high electricity rates cascade their impact all around. Input cost of everything goes up and the buyer gets to pay all of it since it is at the bottom of the food chain of power. But that is just one slice of the issue. The bigger chunk of inflation comes from hoarding and middle men raking in unbelievable profits.

Long arm of administrative system

In the past this was addressed by using the long arm of the administrative system that Pakistan inherited from the British. District magistrates along with the police used to enforce price control mechanisms. This meant arrests of price hikers and raids at the warehouses of the hoarders.

So there was a price list of sorts that fixed a reasonable rate for everything that the consumers needed and worked as a bulwark against extortionists and profiteers.

Two decades ago, the system was done away with. The magistracy was diluted and the police was given independence to allow local public representatives to take charge of grass roots governance.

This was tampered with again and at present Pakistan’s system of price control equivocates between a restricted magistracy and a partly functional local bodies system with the police deciding on its own how and when to apply force to reign in rising prices.

These administrative loopholes allow mafias, big and small, to get away with blue murder. In the sugar industry alone, in the last three months the consumer has paid 16 billion rupees extra in escalated prices. In the last year plus there has been a transfer of 81 billion rupees from the consumer to the producers and the middle men.

Just to put in perspective how much the public can be squeezed, the sugar prices have shot up from 64Rs kg a few years ago to 110Rs now.

And this is just one item of daily use. With the holy month of Ramadan just round the bend, the bazaars will be filled with low quality items selling at the cost of gold.

Like all previous governments this one will try to address this tsunami of price hike by creating its whole sale “affordable markets” in different parts of the country but for a country of Pakistan’s size this is always a marginal step.

Super spreader spots

Moreover, this year with Covid-19 surging all around, such outlets will be harder to manage lest they should become super spreaders.

There are no easy solutions available to this challenge; in fact it looks as if there is none. Appeals to the nation such as one prime minister Imran Khan launched may highlight that the leadership is seized of the situation but practically it does not pare down the escalating rates of commodities of daily use nor provide buffers against the daily shocks that the public is exposed to.

Perhaps an effective way forward is to keep supplying affordable items to the chain of Utility Stores that Pakistan has had for decades and allow these to compete with bazaars ripping off the ordinary citizen.

A more effective administrative crackdown against hoarders is another step to manage the situation. Prosecution of price manipulators and speculators is yet another.

Syed Talat Hussain is a prominent Pakistani journalist and writer. Twitter: @TalatHussain12