The inflation rate in Pakistan stayed above target at 27.4% in August, according to recent data, as the country implements reforms required as part of its loan agreement with the International Monetary Fund (IMF). These reforms have made it challenging to control price pressures and stabilize the depreciating value of the Pakistani rupee.
Following approval of a $3 billion loan program by the IMF in July, Pakistan is now working towards economic recovery under a caretaker government. The loan program helped to prevent a sovereign debt default.
Unfortunately, the reforms tied to the IMF bailout, such as the easing of import restrictions and the removal of subsidies, have led to a surge in inflation. In May, the annual inflation rate reached a record high of 38.0%. In addition, interest rates have risen, and the rupee has plummeted to all-time lows, with a 6.2% decrease in its value last month.
The latest data from Pakistan’s statistics bureau shows a slight improvement compared to July, with an inflation rate of 28.3%. However, food inflation remains high at 38.5%. To compound the situation, authorities have recently raised petrol and diesel prices to record levels.
These worsening economic conditions, combined with growing political tensions leading up to the November national election, have sparked protests in various parts of the country. Jamaat-e-Islami has even called for a nationwide strike in response to higher power tariffs.
Ordinary Pakistanis are feeling the strain of these economic challenges and inflation. Many find it difficult to make ends meet. Waseem Ahmed, a bank employee in Islamabad, expressed concern over the financial struggles of the middle class. He mentioned that a significant portion of his salary is spent on bills and petrol, leaving little for basic necessities. Such circumstances have even led some people to contemplate suicide.
Mohammed Sohail, CEO of Topline Securities, a brokerage firm in Karachi, stated that August’s inflation reading aligns with expectations. However, he noted that the declining rupee value and rising energy prices may prevent a significant decrease in inflation year on year, as initially projected. The government had estimated inflation to fall to 22% by the end of the fiscal year.
In its latest monetary policy statement, Pakistan’s central bank, which kept benchmark interest rates at 22% in July, expressed its expectation of a gradual decline in inflation over the next twelve months.