As the country hurtles towards the February 8 election, the consensus of the major parties seems to have been formed that the major problem of the country is inflation. Now that might be a no-brainer, but none of the three major parties seems to have any solution. It is not as if any party has propounded a bad solution; they are not presenting any solution. It almost seems as if there is a consensus that if the problem is ignored, it will go away. Unfortunately, that does not seem to be happening.
There is a little bit of wriggle room justifying this position, for the State Bank of Pakistan’s latest Monetary Policy Statement has suggested that inflation might start declining in March, thus indicating that the SBP target of 5% to 7% inflation, by September 2025, might be met. Already, there has been a nominal slowing of inflation, which clocked in at 28.34 percent in January year-on-year, compared to the 29.66 percent recorded in December. However, 28.34 percent remains punitively high, and will remain posing the danger of hyperinflation. To an extent, the IMF’s insistence on maintaining a record policy rate of 22 percent can be criticized for not having worked. However, before the SBP even thinks about lowering the policy rate, the IMF has warned all central banks against premature rate cuts based on market expectations. This indicates that the IMF thinks Pakistan’s inflation is imported.
Pakistan’s current inflation may well spike, as electricity tariffs and gas tariffs are both expected to go up soon, as IMF conditionalities are met. Already, the effect of the recent hike in fuel prices has yet to kick in, which will mean that the expected slowdown in inflation may not happen. Inflation does not mean suffering just for the consumer needing more money just to eat, but also means the postponement of investment decisions as there is no certainty about pricing of inputs (including capital), or any of the myriad items that make up the cost of a product. It also does negative things to consumer expectations, like propensity to save. Perhaps worst for the contenders on February 9, inflation also makes voters disaffected with their representatives. Unfortunately for democracy, they do not seem to have more of a strategy than doing nothing. Whoever wins on February 8 will find that whatever support it has will be eroded blindingly fast by inflation.
