Can we get away with the rising inflation in Pakistan?

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Inflation_Pakistan

Out of so many problems and issues that haunt the economic conditions of Pakistan inflation perhaps has far-reaching effects as it directly impacts the poor and middle-income class.

The term inflation is generally perceived as the rise in the prices of essentials in terms of goods and services. It erodes the purchasing power of the people and for Pakistan, this erosion has been significantly high since the last decade of the twentieth century.

Oil dependence and Inflation

Global oil prices also fall among the determinants of the inflation in Pakistan as our economy is heavily oil-reliant. When global oil prices fall, the prices of commodities also fall and inverse happens when the global oil prices increase. At such a point of time, the government doesn’t deserve the credit for low or high inflation.

 

Inflation rates for the past months in terms of Consumer Price Index (CPI)

CPI_Inflation
The inflation measured through the consumer price index exceeded more than 9 percent in the month of March – courtesy Pakistan Today.

Budget deficit and inflation

The budget deficit is considered as one of the most important reasons for inflation. Pakistan is confronted with the problem of twin deficits as stated by the Prime Minister Imran Khan in his latest talk on ARY. One of them is a fiscal deficit and the other is the current account deficit. Budget deficit happens when the government’s expenses exceed the revenue collection and borrowed income.

Also See: Pakistan Seeks More Funding

 

Possible remedies to get away with the worst effects of inflation

Although I am not well versed in economics but, here are a few suggestions that can act as a buffer to do away with the impacts of inflation. An increase in the tax net will help in reducing the fiscal deficit as the PTI government also aspires to increase the tax net through Assets Declaration Scheme, FBR reforms and by imposing more duties on luxury imports.

 

  • Indirect taxation already burdens the doomed section of society so to ease the burden of taxes on the poor income group, there is a dire need to increase the direct taxation. To achieve this easy payment mechanism and low taxation rates can work.
  • Purchasing assets in kind rather than in cash will reduce the effects of currency depreciation. For instance, the prices of land assets only increase with the passage of time.
  • A crackdown against the hoarders at a relatively fast pace is an ultimate necessity as they are playing a bad role in the escalation of prices of different commodities especially eatables.
  • Instead of relying on the oil-determined economy, the government and the industries must explore the other ways of energy supply.
  • The despicable acts of traders also add fuel to fire and to minimize this factor, the public sector must introduce some nationwide portal to check out the daily price of commodities.
  • Again an easy taxation mechanism can help improve the tax net.
  • E-taxation in which the physical presence of a tax filer is not necessary can be helpful as well to cater to the fiscal deficits.

Do you have any ideas about reducing the fiscal deficits of the country? Please let us know in the comment section below

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