KARACHI, JUL 31 /DNA/ – Under the domino effect of dollarization, the skyrocketing inflation, which is already in the midst of a decade-high level, along with the unprecedented rupee depreciation, high energy tariffs, escalating markup rate, rising commodity prices, fluctuating exchange-rate and balance-of-payment crisis, will lead to further hike in headline inflation to cross 25%, taking a toll on the local economy, warned the Businessmen Panel (BMP) of the FPCCI.
In a statement issued here on Sunday, the BMP Chairman and FPCCI former president Mian Anjum Nisar, referring to the reports of financial experts, observed that the domino effect of dollarization has destroyed every sector of the country, as the inflation of July will hit the decade highest level of 25 percent. He informed that nearly 20% of the headline inflation is directly impacted by rupee devaluation, which will continue to erode any solace from the softening of international prices. This is similar to the highest reading recorded in the 21st century at 25.2% in August 2008 during the global financial crisis, he said, quoting a report of financial experts.
He said that the inflationary pressure is expected to continue in coming months as electricity base tariff hike and gas price revision have yet to reflect in CPI numbers, while sharp rupee depreciation would also add to inflationary pressures.
The Businessmen Panel (BMP) Chairman stressed the need for reducing cost of doing business, besides evolving a new price control mechanism, as huge taxation, rising oil prices and constant jump in electricity and gas tariffs have already lifted the CPI-based inflation to 10-year high level at 21.3% on a year-on-year (YoY) basis in June 2022. This was the highest monthly CPI reading since December 2008 and now, it is expected to go beyond the 2008 level.
He said that it has now proved that the central bank’s tight monetary policy has no effect on the prices of food items that are increasing because of supply shocks, increase in sales tax rates and monopoly of few businesses.
The BMP Chairman warned the authorities that inflation above 6 percent can hurt economic growth and a careful policy is required to keep it in control. He said that the pace of inflation is skyrocketing at a time when the economic activity is slowing down, which has made it difficult for the people to cope with the situation, as country is facing a situation of stagflation because economic growth rate is slow while unemployment and prices of goods and services are high.
Mian Anjum Nisar said the present situation indicates the complete breakdown of administration in all federal and provincial governments besides highlighting the impacts of unprecedented taxation in this fiscal year. He demanded the SBP to take concrete steps to help stabilize the currency as businesses and industrial activities are badly affected, especially small and medium enterprises (SMEs) are facing high financial losses. The government has so far not rolled out the much-needed comprehensive strategy or a contingency plan to safeguard the interests of the country and its people. The IMF and financial support from friendly countries and other lenders is the primary source of salvation that Pakistan appears to be depending upon. And this too is shrouded, so far, in uncertainty. This relief if materialized would carry the country up to the year’s end. But then what after that?, he asked. The industry and businesses are all confused and at a loss as to how to go about their businesses in this state of unending fall of rupee against the dollar and high interest rates. Also, there is a trust deficit between businesses and the government on account of changing narratives presented by the government on the country’s fiscal and economic stability.
The previous governor of the State Bank Dr Reza Baqir, who was a signatory to the present IMF program, often intervened to manage and arrest the rupee slide when dollar was subjected to speculation by balancing the supply and demand dynamics of the currency parity and maintaining it in a band supported by the country’s fiscal strength. This corrective alignment is permissible, but, apparently not exercised by the present government. There must be some underlying strong reasons for not doing so. The IMF, as per its standard guideline, vests all powers with the governor and the board of a fully autonomous SBP to manage the currency parity as per the prevailing market dynamics and strength of the country’s financials.
