Pakistan (Commonwealth Union)_ Pakistan experienced a record-high inflation rate in April 2023, primarily due to increased food prices, a weakening currency, and rising energy costs. According to the statistics bureau, consumer prices rose by 36.4% in April from a year earlier, which is the highest rate since 1964. Additionally, Pakistan has the highest inflation rate in South Asia, which has risen from March’s rate of 35.4%.
In rural areas, the food inflation rate has been recorded at 40.2%, while transport prices have surged by 56.8%. Meanwhile, food prices have risen by 2.4% in April from March. Further, clothing and footwear prices have increased by 21.6%, and housing, water, and electricity costs have risen by 16.9%. Additionally, the Pakistani rupee has also performed poorly against the dollar, declining by 20% so far in 2023, leading to an increase in the prices of imported goods.
Pakistan’s inflation rate is anticipated to rise even further as the government has increased taxes and fuel prices to meet the International Monetary Fund’s (IMF) conditions for the repayment of a $6.5 billion loan program. These bailout funds are critical for Pakistan to pay for important import products such as food and fuel and to avoid defaulting in the coming months. However, the IMF seeks financing guarantees before resuming assistance.
In an effort to curb inflationary pressures, the State Bank of Pakistan raised its benchmark interest rate to 21% last month, which is the highest since the central bank’s records began in 1956. However, rising inflation could result in elevated borrowing costs for the country, which is still recovering slowly after last year’s floods. The next monetary policy review is scheduled for June 12. Although the central bank suggested that inflation was plateauing, recent data suggests otherwise.
Uzair Younus, the director of the Atlantic Council’s South Asia Center, believes that this optimism is misplaced, as recent numbers suggest that the central bank is still behind the curve. Furthermore, the continuing upward march of food prices is particularly concerning, as more than four million people have gone below the poverty line, and rising food costs will further impact numerous households.
Prime Minister Shehbaz Sharif, who is also dealing with a political crisis, is under additional pressure due to rising prices. Imran Khan, his opponent, is pursuing early elections and has threatened to revert to street protests if he is not granted his demands. Further, the political crisis along with the economic crisis may further hinder Pakistan’s recovery from the ongoing inflation crisis.
