Economy
 
Rising inflation swells ranks of those living below poverty line
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June 08, 2012
Though the fifth and the last budget of the present government of prime minister YousufRazaGilani, which he terms as the historic achievement, has been announced but it does not promise to protect the poor from further sufferings in the backdrop of increasing inflation. During last four years the price of essential commodities witnessed rising trend. The inflation remained the biggest evil throughout the Gilani’s tenure.

The latest data shows that the inflation upped by 12.3 percent on yearly basis in May 2012 as compared to 11.3 percent in the previous month, April. High petroleum products and electricity tariff hike are responsible for the increase of inflation rate which increased cost of living and production. The inflation which remained above 10 percent during current fiscal year and has added another 6.9 million people to the ranks of those living below poverty line.

According to the Economic Survey 2011-12, the inflationary pressure on the economy has increased during the last four years due to a combination of the external and domestic shocks. Inflation which had increased rapidly during 2007-08 by 17 percent for the consumer price index overall and 23.7 percent for food items respectively has started to come down. The rise in price indices was mainly driven by food inflation, which rose rapidly during this period. Prices of basic food commodities like wheat, wheat flour, eggs, fresh fruits, chicken, potatoes, rice, vegetable and cooking oil rose sharply.

Food insecurity is a multi dimensional problem and deserves to be tackled through a multi pronged strategic approach where demand, supply and distribution factors need to be taken into account. Availability and access, two important components of food security needs to be addressed simultaneously. Food carries the largest weight in three price indices and hence influences the movement of these indices even with slight variation in prices.

The most visible impact of rising food prices on the economy is acceleration of inflationary pressure. In such a situation controlling the inflation becomes unmanageable. Pakistan is experiencing double-digit inflation over the last several years mainly due to increase inprices of food. The government has raised the prices of petroleum products especially CNG and electricity which have pushed the production and transportation cost up thereby accelerating inflation rate above 12 percent against targeted single digit.

The inflation is fueling poverty in the country which could only be reduced by sustained growth on a consistent basis. Macroeconomic stability is necessary for the sustained economic growth but it is not sufficient to reduce poverty. Rather, it is the foundation on which to build a thriving economy. No single policy can completely address the needs of poverty reduction. Food-based interventions may play a supplementary and short term role in eliminating poverty. A multi-pronged approach is needed, which includes interventions to enhance incomes, Survey report 2011-12 says.

During 2011-12, energy outages in Pakistan continued to be the dominant constraint in its growth. The power crisis left thousand of people jobless and force to shutdown many industrial units. Estimated cost of power crises to the economy is approximately Rs.380 billion per year, around 2 percent of GDP, while the cost of subsidies given to the power sector to the exchequer in the last four years, 2008-2012, is almost 2.5 percent of GDP. During last four yeasRs. 1100 billion were given to the power sector as subsidy. The liquidity crunch in the power sector has resulted in under utilization of installed capacity of up to 4000MW. It has also affected investment in power sector.

Many people in the country believe that the power crisis is engineered to by vested interest in petroleum sector to pave the way for import of Liquefied Natural Gas. The government’s LNG Policy 2011 encourages private parties to develop LNG projects.

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