In Pakistan, inflation peaked at 38% in May 2023 but dropped to 4.9% by mid-2024 after an IMF bailout. Despite lower inflation rates, the cost of living remains high, and poverty affects over 40% of the population. Mismanagement of currency and macroeconomic challenges paint a complex picture where inflation decline does not equate to improved affordability.
In May 2023, Pakistan faced unprecedented economic challenges when its consumer price index (CPI) inflation soared to an alarming 38%. Remarkably, by mid-2024, inflation had moderated to 4.9%, mainly following an IMF intervention that provided crucial support to avert default. The State Bank of Pakistan (SBP) initially responded to inflationary pressures by raising interest rates to a historic 22%, which discouraged spending and borrowing, ultimately aiming to contain inflation.
However, in June 2024, the SBP undertook its first rate cut in four years, lowering the interest rate to 20.5% as inflation eased to a 30-month low of 11.8%. While this could suggest economic improvement, the underlying reality showcased an ongoing crisis, as poverty remained a pressing concern with approximately 40.5% of the population living below the poverty line.
Despite falling rates, disinflation reflected a reduced pace of price increases rather than decreased prices. For instance, while certain food prices have seen marginal declines, others continue to rise, leading to an overall stagnation in purchasing power. Experts emphasize that lower inflation does not equate to affordability improvements, as wages have failed to keep pace with inflation trends.
The crisis has roots in previous government policies that included stringent currency management leading to a sharp depreciation of the rupee, coupled with surging fuel prices due to global events. Although inflation has cooled, structural economic problems persist, compounded by external factors like global oil prices and domestic policy choices.
The current economic outlook suggests that as long as fiscal discipline is maintained, inflation may stabilize within the low double-digit or high single-digit range over the next year. The IMF’s presence is vital in guiding economic reforms, but continued monitoring of price stability remains essential to avert a resurgence of inflationary pressures.
In 2023, Pakistan’s economy faced a dire crisis characterized by soaring inflation reaching 38%. This situation required urgent intervention from the IMF, which provided financial assistance, allowing for the stabilization of the economy. The drastic increase in inflation necessitated significant monetary policy changes, including raising interest rates, while the poverty rate continued to rise, revealing deeper economic issues beyond mere inflation figures. Understanding these dynamics helps contextualize the subsequent developments in 2024, where inflation rates began to fall but did not translate into actual reductions in living costs for the populace.
In conclusion, although Pakistan has witnessed a remarkable decrease in inflation rates, the picture remains grim for many citizens. The reduction indicates a slow-down in the rate at which prices are increasing rather than a reversal of price levels. Structural issues such as widespread poverty and low purchasing power necessitate focused economic reforms and support to improve the standard of living for the populace. Without addressing these challenges, the benefits of disinflation may not reach those who need them most, thereby perpetuating economic hardship.
Original Source: www.dawn.com
