I am often asked this question that if the claims of the government on inflation are indeed correct, then why aren’t the prices coming down? Well, a simple answer is that it is the inflation that is being tapered down and not the price points, meaning the escalation in prices still remains, albeit at a slowing rate. The trouble is that with the Pakistani public now exposed to hyper-inflation for such a long duration and to a double whammy of its wealth erosion owing to some mindless PKR devaluations, this diminishing rate of national inflation is simply not good enough for them.

Somewhere along the line, it is necessary for the government to hit disinflation, if it is to really win over the people on count of improving their disposable financial income. In the run-up to the latest review of the country’s monetary policy, the State Bank of Pakistan (SBP), faced a dilemma: Should it retain its focus on containing inflation, or recalibrate its priorities and do its bit to revive growth by reducing the interest rate? Eventually, SBP leaned towards the latter, thereby signalling that it was cognizant of the growing pressures on growth. In contrast, our neighbour India, opted for the former where it’s central bank RBI (Reserve Bank of India) opted not to reduce the interest rate by instead opting to inject liquidity into the system to support growth: While the RBI did not blink on interest rates - though it did not rule it out a cut in the future - it reduced CRR or the cash reserve ratio (the share of deposits banks retain with RBI) to release an estimated 11.16 trillion Indian Rupees into the economy.

Now both strategies, the one by the SBP and the other by the RBI, tacitly signal the challenge faced by central banks world over in dealing with the back-to-back shocks that have been unleashed on the global economy since the covid-19 pandemic. One big fallout has been the unleashing of a global wave of inflation. Across South Asia, while the respective central banks have successfully tided the worst of it, they however, are unable to close out the last mile: disinflation – not just slowing, but actually unravelling the decrease in prices! The on-going dilemma or challenge being that whereas, the gains achieved so far tend to be in the broad direction of disinflation, notwithstanding some sporadic upticks, they have yet to culminate in actual disinflation of any sort. At the same time, the growth trajectory and the evolving outlook also need to be monitored closely to avoid unemployment and stubborn supply-chain issues. At this critical juncture, prudence and practicality demand that we remain careful and sensitive to the dynamically evolving situation with all its complexities and ramifications. A wait and see attitude on monetary policy thus seems to be the appropriate way forward, at least for now. Perhaps a good move by our governor central bank would be to posture in a way that shapes a general perception on that disinflation may be just round the corner.

Just like the RBI Governor Shaktikanta Das, in a nationwide year-end press conference made it a point to emphasise that although RBI acknowledges the challenges faced on taming inflation, it is well poised to close out the last mile on disinflation by the end of 2025. The good news about the Pakistani economy is that the setbacks are being triggered by a few sectors. The bad news is that both the government and the SBP are struggling to reverse these sectoral setbacks, suggesting that tackling this challenge is not solely about managing monetary and fiscal policy, but instead about a larger deeper malaise that stems from an on-going deindustrialisation in Pakistan leading to serious supply-chain constraints. The slowdown in growth to net negative levels comes from a mistrust on economic policies and on the very intentions of the governmental economic team vis-à-vis its vision on taxation, creating an enabling investment environment and spurring industrial growth. To be sure, this level of growth is unacceptable, especially when we look at our peer economies, all of which have been growing between the 5 to 7% levels. Moreover, to make matters worse the inflationary pressures in Pakistan are arising largely on account of sustained food inflation and this is where it hurts the most. Pakistan consistently suffers from inadequate supply of perishable commodities and it is the need of the hour that the government (or rather provincial governments) makes an effort towards improving supplies by creating storage facilities for perishable commodities.

One is hoping that a good way to start 2025 would be for the centre and provincial governments to make a resolve to reduce their weight and size in order to give space to the private sector to overcome the on-going inflation issues through sustainable resolutions of supply chain bottlenecks by investing in the key output areas that have been neglected for almost the last three decades. And this, to aim at hitting disinflation before the end of 2025!

Dr Kamal Monnoo
The writer is an entrepreneur and economic analyst. Email: kamal.monnoo@gmail.com

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