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As the nation grapples with inflated energy bills and crippling inflation, interim Prime Minister Anwaar-ul Haq Kakar told the protesting masses in no uncertain terms: you have no option but to pay your utility bills.
We appear to be approaching the proverbial tipping point, where things may fall into full anarchy, as seen by the suicides of people due to unheard-of electricity costs, which occur at a time when unemployment is rampant and inflation is unparalleled to any moment in recent history.
With the local currency in free-fall, the annual inflation rate reached 30% in August 2023, the lowest level since January but still among the highest in the world. The soaring prices of food, fuel, electricity, and other essentials have eroded the purchasing power of millions of people, especially the poor and the middle class. The inflation rate has been above 25% since October 2022, when the government devalued the rupee by 30% to meet the conditions of a $6 billion bailout package from the International Monetary Fund (IMF).
The devaluation was meant to boost exports and reduce the current account deficit, but it also increased the cost of imports and external debt servicing. The government also raised taxes, cut subsidies, and hiked interest rates to rein in the fiscal deficit and curb inflationary pressures. However, these measures have failed to stabilize the economy, which has been hit hard by political instability, and security challenges. The growth rate has slowed down to negative, well below the target of 4%.
The high inflation has triggered social unrest and public discontent, as people struggle to afford basic necessities and cope with rising unemployment and poverty. The caretaker government has blamed external factors and previous governments for the economic woes, and has vowed to continue with the IMF program and structural reforms.
The State Bank of Pakistan has maintained a tight monetary policy stance, keeping the policy rate at 22% since June 2023. The SBP has said that it expects inflation to gradually decline in the coming months, as the base effects fade and the supply-side shocks subside.
However, some experts have warned that the country’s inflation is at a tipping point, and that further delay in addressing the root causes of the problem could lead to a hyperinflation scenario, similar to what happened in Zimbabwe or Venezuela. They have urged the government and the SBP to adopt a more proactive and coordinated approach to tackle inflation, by reducing fiscal deficits, enhancing revenue collection, improving governance, diversifying exports, attracting foreign investment, and supporting social protection programs.
