LAHORE: Speakers at the 6th World Islamic Economics and Finance conference on Sunday urged the government to revisit its inflation control policy, which is tailor-made for economies facing demand-pull inflation and not for economy of Pakistan, which is cost-push.
Speaking at 6th World Islamic Economics and Finance conference here, Dr Hussain Mohiuddin Qadri, deputy chairman board of governors, Minhaj University Lahore, argued that Pakistan’s financial managers’ perennial approach of increasing exports of the country through devaluation of local currency instead of actually investing in the production of goods was the root cause of the inflation issue as the measure would work only for a short time but would mount foreign debt pressure.
To tackle this pressure, the government would resort to tightening the taxation policy, which in return causes inflation, he added.
He said the policy of increasing the interest rate to combat inflation is not effective in Pakistan, which experiences cost-push inflation due to hike in taxes and energy prices.
The interest rate hike policy did not work even in economies with developed inclusion system like USA, Europe and Japan, while in Pakistan only 21 percent people have bank accounts, many of which are also dormant, he said.
“Not every economic policy is meant for every country and governments need to amend a policy in accordance with its given environment.”
Instead of going to world donors, which impose their own conditions with the credit, the government should resort to open market operation in the form of sukuk and other bonds as it could be more beneficial than relying on enhancing the policy rate, he suggested.
Dr Qadri said the Pakistan government needed to merge the policy rate with other tools for stopping downslide of the rupee and reducing power bills to make the local industry competitive in the world markets.
He said Islamic economics offers solutions to overcome inflation, including reforms to the monetary system by eliminating all forms of interest and implementing a fiscal policy with other instruments to maximize Zakat collection and optimize its utilization, charging fees on idle funds, and using the principle of revenue sharing in every transaction.
