Economic experts believe that the country would be able to cut down the increasing inflation rate by the second half of the current fiscal year. "Fall in international oil prices and improved agriculture outlook, specially in rice and wheat, would help dampen current high inflation during the second half of this year," Dr Rashid Amjad, Vice Chancellor Pakistan Institute of Development Economics (PIDE), told APP here on Tuesday.
It may be recalled that the Consumers Price Indicator (CPI) during August 2008 showed a record increase of 25.33 percent over the same month of previous year. Dr Rashid Amjad, however, was of the view that the real challenge for the government was to put in place an effective and affordable safety net for the poor and vulnerable groups of the society.
"The government's credibility will wrest on to ensure that the income support programmes, including Benazir Income Support Card Scheme help the needy people through a transparent manner," he said. He said that the government would, however, need to supplement this scheme with public works programme in the form of employment guarantee scheme to be launched in the poorer districts and provinces.
Ultimately curtailing the inflation and bringing back the economy on a sustainable growth path would be in restoring confidence of both domestic and foreign investors. A credible stabilisation programme, backed by tough integration and comprehensive strategy package would restore the much-needed business confidence, he added.
Commenting on the record rise in inflation rates, Dr Amjad said that external oil and food prices' shocks were one of the main reasons of increasing inflation, adding that this led to tripling of oil and doubling of food prices in the global market.
He was of the view that preference accorded to political ramification by the previous government and interim government, especially in 2007, and ignoring facing the economic realities and not passing on the increasing oil prices to the consumers became another reason for inflation.
This, he said, resulted in almost doubling of fiscal deficit nearer to 8 percent, leaving the government with no choice but to pass on this prices, otherwise the government would have bankrupted. Another economic expert, however, said that loose monetary policy followed by the State Bank of Pakistan, first to jump start the economy post-2002-03 and then financing government deficit through increasing the money supply in 2007 resulted in inflation.
This was the serious violation of the Fiscal Responsibility and Debt Limitation Act, the expert said, adding that the parliament which passed this act should now pursue those who violated it. Commenting on the issue, a leading economist Kaiser Bengali told APP that inflation was an international phenomenon and Pakistan was no exception.
He said that the State Bank of Pakistan (SBP) is taking measures to tighten monetary policy and it will take another six months or more to control inflation in the country, provided the fiscal side of the government expenditure is reduced. He said that demand driven money supply was created during past three to four years and the money created through this policy cannot be withdrawn overnight.
Bengali maintained that Pakistan was facing double-digit inflation for the last three to four years and observed that inflation registered the double digits in the year 2005 while in the last financial year the inflation was demand driven.
Kaiser said that inflation increased this year was cost-driven and mainly due to increases in the oil and food prices and that happened in almost all countries of the world. He stressed the need for reducing government's fiscal side expenditures for controlling inflation the country is facing.