ISLAMABAD
The All Pakistan Business Forum (APBF) has said that the record high key policy rate coupled with strict fiscal measures, like energy price hike, have continued to slow down economic growth, which is now estimated to be significantly lower than the post-floods assessment for the fiscal year 2022-23.
Expressing serious concern over the recent hike of benchmark policy rate by 100 basis points to new record high at 21%, APBF President Syed Maaz Mahmood, said the action would not stop the elevated inflation reading rather the move might mitigate the estimated economic growth blow 2% for the current fiscal year.
APBF Chairman Ibrahim Qureshi said the IMF loan would have devastating effects on the economy, as with more taxes and increased rates of utilities, cost of production would further increase. This will render Pakistani exports uncompetitive in the global market. He warned the record inflation and high cost of doing business would hurt economic growth, demanding a careful policy to keep it in control. He said that the most serious threat to the economy in the current fiscal year would be inflation, as the government plan of approaching the International Monetary Fund for financial assistance has brought a fresh wave of price-hike, because inflation is already hitting due to continuous raise in oil prices and depreciation of local currency.
Ibrahim Qureshi predicted that inflation would remain high and may even increase further due to market frictions caused by relative demand and supply gap of essential items, exchange rate depreciation and recent upward adjustment of administered prices of petrol and diesel.
The APBF President said that due to the lagged effect of floods, production losses, especially of major agriculture crops, has not yet been fully recovered. Consequently, the shortage of essential items has emerged and persisted. Inflation may further jack up as a result of second round effect.
Syed Maaz Mahmood said that there is a consensus that a low inflation rate helps economic activities, while high inflation hurts economic growth. The high inflation environment affects decision making of all economic agents in economy, like investors, savers, consumers and producers through uncertainty about the expected payoffs from their decisions. Moreover, a persistently high inflation also causes erosion of the value of the local currency in terms of foreign currencies. Such uncertainties, in turn, have adverse implications for economic activities.
He said low inflation helps economic agents to predict outcome of their economic decisions with fair level of certainty. Especially, producers follow their plans for business expansion with more confidence; and new investment is undertaken in the expectation of predictable returns.
As per PBS data, the food group, which commands a significant weight of 34.58% in the inflation reading, remained the major driver behind the increase. It increased from 170.06 in March 2022 to 250.25 in March 2023, a jump of over 47% while the transport group witnessed an increase of 55% YoY. He warned that inflation is expected to stay in this range at least for the next two months. He said that the transportation index was driven by a significant hike in auto rates in March, alongside, an increase in the POL prices, he said. In addition to higher food being the usual culprit, higher gas prices amid long-due adjustment in gas tariffs are among key drivers. Data showed that CPI inflation in urban areas increased to 33.0% on year-on-year basis in March 2023 as compared to an increase of 28.8% in the previous month and 11.9% in March 2022.
