PAKISTAN READER

Vaneeta

On 11 June 2024, Finance Minister Muhammad Aurangzeb of Pakistan released the “Economic Survey 2023-24,” in which it was highlighted that Pakistan's economy saw a minor slowdown in FY2023 because of flood damage, rising worldwide inflation, and global economic contraction. In Pakistan, “inflation has become the most significant economic challenge” that has gradually worsened over the last three years and has been “driven by a gap between demand and supply.” After COVID-19, inflation increased globally, but since August 2019, local measures to reduce the deficits in the current account and the budget have resulted in high inflation. With a peak of 38 per cent in May 2023, the average inflation by FY2023 was 29.2 per cent, which had a significant impact on the cost of food and energy. The following are six major takeaways from the chapter on inflation in the survey.
 
1. A “broad-based” deceleration in inflation rates
During July-April FY 2024, Pakistan's inflation rate showed signs of improvement, averaging 26 per cent, down from 28.2 per cent in the same period the previous year. The survey showed year-on-year (YoY) and month-on-month (MoM) data comparisons of 2023 and 2024, as per which in April 2024, the Consumer Price Index (CPI) inflation was recorded at 17.3 per cent, a decrease from 20.7 per cent in March 2024 and 36.4 per cent in April 2023. The data from the survey indicated a positive trend of slowing inflation, with a notable MoM decline in April 2024. This was largely due to an increase in the volume of the Ramadan Relief Package from PKR 7.5 billion to PKR 12.5 billion which eased the financial burden of the recipients, administrative actions against illegal foreign exchange companies, and measures to reduce smuggling and hoarding in the commodity market. The rate of inflation increase also slowed for perishable food items in FY24, mainly due to “lower global commodity prices, better domestic crop yields, and improved market supplies.” A coordinated policy response from both the provincial and federal governments helped reduce inflation from 38 per cent in May 2023 to 17.3 per cent in April 2024, and the survey projected a continuing “broad-based” decline in inflation, “reflecting fiscal consolidation, smooth supplies of food items, favourable global commodity prices, and the base effect.”
 
2. A variety in the drivers of inflation
Global factors have played a significant role in the recent inflationary pressures faced by Pakistan. Global supply chains are severely disrupted due to the conflict between Russia and Ukraine, the conflict in Gaza, and attacks in the Red Sea, especially affecting food and energy prices. For instance, the global market prices of crude oil, rice, tea, and urea increased by 7.1 per cent, 19.7 per cent, 2.4 per cent, and 2.1 per cent respectively in April 2024 compared to April 2023. The COVID-19 pandemic has also had a lasting effect on global trade and logistics, further straining supply networks and driving up prices. Ever since August 2019, double-digit inflation has been largely caused by Pakistan's massive fiscal and current account deficits. These deficits have led to increased borrowing and spending pressures, which have fuelled inflation. In addition, the currency has depreciated due to Pakistan's declining foreign exchange reserves. The cost of imports has increased due to this devaluation, which has increased consumer prices. Moreover, the 2022 floods severely impacted the agriculture sector, leading to increased prices of perishable goods that impacted the food prices' stability. The survey contended that with a possibility of the volatility increasing in the Middle east, further “economic fragmentation may hinder cross-border commodity flows, intensifying price volatility.” Separately, the rising occurrence of extreme weather events could “further raise food prices, worsen food insecurity, and challenge global efforts to control inflation.”
 
3. A provincial-wide effort to stabilize prices
All four provinces took different price control measures to help tackle rising prices. In Punjab, there was “special emphasis” on price control, with the chief secretary of Punjab holding “regular process review meetings” with the heads of various departments. Meetings were also held by the Forecast & Supply Chain Management Committee, in which decisions were communicated to the federal government. 1400 magistrates were working in the province to curb the issue of retailer overcharging, with “special instructions to curb overcharging with an iron hand.” In Sindh, commissioners and deputy commissioners worked to ensure fixed prices of essential commodities and monitor the “auction of vegetables and fruits” at the marketplace. During Ramzan, the government of Sindh tasked authorities with ensuring the availability of essential goods and publishing the prices of these goods regularly. In Khyber Pakhtunkhwa, the food department regularly checked the availability of essential goods and conducted market checks. A Decision Support System for Inflation was implemented at the district level to monitor the gap between wholesale and retail prices. In Balochistan, price fixation committees devised a single price fixation formula. A level price monitoring committee was formed to report price variations provincially.
 
4. A slight difference in urban and rural inflation rates
While urban areas often experience higher inflation due to more significant price fluctuations in goods and services, rural areas, though typically facing lower inflation, still feel the impact of rising costs, especially in essential commodities. In urban areas, on a YoY basis, CPI was 19.4 per cent in April 2024 compared to 21.9 per cent in March 2024, with a notable decline from 33.5 per cent in April 2023. This pattern suggests that, in comparison to the prior year, inflation rates have been declining more quickly in urban regions. On the other hand, rural areas also saw a smaller drop in inflation. On a YoY basis, the CPI was 14.5 per cent in April 2024 compared to 19 per cent in March 2024, with a significant decline from 40.7 per cent in April 2023. This decline is consistent with the countrywide trend of lowering inflation, indicating that both urban and rural areas although at varying rates are benefiting from the general decline in inflationary pressures.
 
5. A variation in different categories highlighted by sectoral inflation
The survey shows notable differences in sectoral inflation amongst various categories. Between Q1 and Q3 of FY24, there was a significant decline in food inflation, mostly because of reduced global commodity prices, higher domestic crop yields, and greater market supply. In comparison to the previous year, food and non-alcoholic beverage costs increased by 25.5 per cent from July to April of FY24. Non-perishable food items had an increase of 26.7 per cent, while perishable items increased by 18.5 per cent. In contrast, there was a significant increase in costs in the housing, water, electricity, gas, and other fuels sectors, with prices growing by 28.4 per cent as opposed to 13.6 per cent the year before. Higher energy tariffs, variations in the price of oil globally, and currency devaluation were the main causes of this spike.

Inflation
What did the Economic Survey say in the 2022 and 2023 reports?

Pakistan Economic Survey 2022-23
The economic survey of 2022-2023 highlighted similar causes for inflation as in 2024 such as weak currency, supply chain interruptions from natural disasters and ongoing conflicts, rising global food costs, and extensive tariff revisions. The severe agricultural crisis was a factor in this year’s survey. Moreover, urban inflation increased by 33.5 per cent YoY in April 2023, up from 33 per cent in the previous month and significantly higher than the 12.2 per cent recorded in April 2022. The government took measures to bring price stability and gave products at a subsidized rate, including PKR five billion for the Ramzan Relief Package which has been increased from previous years. 

Pakistan Economic Survey 2021-22
The inflation target was set for eight per cent for the fiscal year 2022 but throughout the year it stayed in double-digits. Urban CPI saw a 15.6 per cent increase and rural CPI inflation 17.7 per cent in the same month, showing a similar urban-rural trend shown in the 2023-24 survey. The conflict between Russia and Ukraine also caused a significant disturbance in the global supply chain, given that both countries are major exporters of agricultural products and energy. The inflation estimate for FY22 inflation was 11.5-12 per cent, but the 2022-2023 survey shows that it crossed that the 12 per cent mark to reach 13.4 per cent in April 2022.

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