Inflation outcome of PTI’s sheer callousness: Ishaq Dar

ISLAMABAD: Former Finance, Revenue and Economic Affairs Minister of Pakistan Ishaq Dar says the PTI government inherited a long spell of price stability and low inflation at the close of the PML-N tenure 2013-18.

The average annual inflation during these five years was recorded at 8.62%, 4.53%, 2.86%, 4.16% and, 3.92%, respectively.

The average inflation of five years of the PML-N tenure was 4.82%, which was not only in single digit but also less than 5%, an ideal rate which ensures incentive for growth.

In an inclusive interview with this reporter, Dar said this was in sharp contrast to what the PML-N government had inherited, a raging and volatile inflation, which averaged in the double digit, at 12%, over five years period 2008-13 (with annual average inflation at 17.05%, 10.10%, 13.66%, 11.01% and 7.36%, respectively).

While the PML-N government worked diligently to rapidly bring down the inflation, the PTI government has shown utmost disregard for inflationary pain for the general public when it created conditions for not only destroying the price stability which it had inherited from the PML-N last year but also unleashed a massive wave of inflation which has reached an alarming level of 12.7% in November 2019, highest in last 9 years.

Dar said that during 2018-19, in the first year of PTI government, CPI inflation was recorded at 6.8%, as opposed to 3.92% in 2017-18 which PTI inherited from PML-N. But this was just the beginning. Since then the headline inflation has jumped to 12.7%, as we noted above. The most worrying thing is that this inflation has not been caused by any international oil price crisis, as it happened in 2008. This has been caused by food inflation and due to domestic factors. The food inflation in November 2019 was 16.6% in the urban areas and 19.3% in the rural areas. These are unbelievable numbers. Such level of food inflation is not only unprecedented, except in 2008-09 when the world faced international financial crisis and steep rise in international commodity prices, especially oil.

He said that it would be in fitness of things to question as to what has led to such massive rise in inflation. The factors that have contributed the most include rupee devaluation, high interest rate, heavy taxation and crop failures due to weather conditions.

Dar said that massive devaluation of rupee was the worst ill-conceived step taken by the PTI government. During 2018-19, the rupee depreciated from Rs.115/$ to Rs156/$ at present, though for some period it was Rs165/$ also. This is staggering devaluation of 36%. Given a very high content of imported inputs in country’s production processes, this had major impact on the cost of production across the board, in some cases immediately, and in other, with time lagged effect.

He said that it was followed by heavy taxation to raise more than Rs700 billion extra, which has no parallel in country’s history. PML-N did not impose this level of tax burden during its entire five years term. This burden included such heartless measures as increasing the tax burden on sugar, cement, petroleum products, gas and electricity.

Simultaneously, the interest rates, Dar said, were nearly doubled in the country, with SBP policy rate rising to 13.25%. The businesses have felt the tremor as their finance costs have become unbearable and there are news of rising defaults and rescheduling requests with Financial Institutions. The Small and Medium Enterprises (SMEs) sector has been affected the most as the finance cost is beyond their capacity to pay. These SMEs are the conduit through whom the markets are run and production reaches to the consumers.

Finally, the weather has impacted supplies of agriculture products. Last year there was a negative growth in the agriculture sector. Chances and indications are that this cycle would be repeated again this year. Under the circumstances, the food inflation skyrocketed, rising from 3.3% in August 2018 when PTI government took over to a national average of about 17.5% in November 2019, which is nearly 530% increase.

Dar said while inflation has skyrocketed, people’s incomes have declined both because of higher taxes as well as loss of employment. The first quarter saw a steep decline of 6% in the production of large scale manufacturing sector. It is not difficult to imagine how many jobs must have been lost because of declining production and closure of factories. The heavy decline in imports is the primary reason for production and consumption decline. The cotton crop would be short by about 15% which will also negatively impact the textiles and allied industries.

He said that GDP has declined from 5.8% of PML-N to 3.3% in the first year of PTI with prediction of further slide to 2.5% in the current year and there are no prospects of trend’s reversal till 2023. Continuous decline in industrial and agriculture production is registering every month. Jobless numbers are peaking and with double digit inflation, the poverty is on the rise.

Dar said that the economic policy of the PTI government is myopic as it has chosen to shut-down a large part of the economy for the sake of mindlessly controlling the current account deficit. In the process, it has ignored close linkages that under-pin the economy. Inflation is the primary manifestation of this misconceived policy. The 9-year high inflation is a testimony to government’s callousness to the sufferings of the low and middle income groups. This antipathy is also seen in poor and sporadic administrative efforts to ensure that prices are not charged beyond supplied prices together with a reasonable retail margin. Unlike PML-N’s National Prices Monitoring Committee’s regular meetings with federal and provincial representation, it seems no one in the PTI government is incharge of holding such coordination meetings to regularly monitor price movements across the country and take corrective measures when an unusual movement is observed, such as in the recent case of tomatoes and some other kitchen items. As an example of this indifferent outlook toward prices and supplies monitoring is the recent tweet of a PTI minister who wrote: “The way Sindh government has mismanaged the flour issue, I expect flour crisis in Karachi starting next week. Wrong policies, corrupt practices & no control on flour mills”. How cruel, watching the crisis building and limiting the action to naming and blaming. Where are the wheat stocks of PASSCO kept for such contingencies? It seems the only thing that interests PTI ministers to simply use the occasion to put the blame on others and spare themselves of any responsibility. Clearly, this cannot go on.

He said that while the anger and outrage of people is rising, the Prime Minister is excited and relishing in tweeter claims that the economy is on the roll. The noted economic writer, Farhan Bukhari, writing in the Arab News, has summed up the ground situation by saying: “Taken together, the claims [of economic turnaround] versus real-life evidence must qualify among the worst disconnects in the history of Pakistan”.

Dar concluded that there is no other option for the PTI government but to abandon its mindless approach and immediately revise its fiscal and monetary policy to achieve stable rupee, reduction in interest rates and significantly lower inflation.