The inflation reading for September closed on 6.9 percent, the lowest reading for four years, which is undoubtedly good news for the government. However, the inflation rate has been declining since February, according to the official statistics, but has it led to any relief for the common man? It has begun to lead to relief for the government and private sector entrepreneurs, as the State Bank seems likely to opt for a further cut in its policy rate. It had taken the rate to 22.5 percent last year, but has brought it down to 17.5 percent. For an economy that has a 6.9 percent inflation rate, that is a very high policy rate. One of the effects of this has been to make borrowing high for both the government and the private sector. Already, the calls for a reduction in rates have begun. With the very first call, by the United Businessman’s Group, demanding a 300 basis point cut, with the rate brought down to eight percent by January.
That may well be asking for the money, as while the country has got an IMF package approved, it has only received one tranche, with further disbursements depending on successful reviews. Those will depend on Pakistan sticking to the IMF programme, which includes high interest rates to control inflation. The IMF would probably like to see interest rates kept high, to be brought down slowly so as to avoid the rick of inflation sparking up again. The growth projection for Pakistan is now about 3 percent, which indicates a recovery, but which is still anaemic.
Will the common man get any relief? That will only happen if prices fall or incomes rise. The economy appears to be emerge from the stagflationary rut in which it was trapped, but the government will only be bv to claim political credit if growth picks up. Though fuel prices have gone down, and inflation is declining internationally, which means that exports will increase, the improvement in export industries lies in the future. Improvement in people’s lives will only come when the horde of unemployed youth get jobs, and for that the economy must pick up. Inflation coming under control, as it seems to have done, is an essential prerequisite. This is the stage at which the government must move from an inflation-fighting mode to a growth-inducing one.
