Daily Management Review

Pakistan’s Inflation Hike Was Largest In World During 2020 Due To Pandemic


Pakistan’s Inflation Hike Was Largest In World During 2020 Due To Pandemic
The novel coronavirus pandemic outbreak across the world has upended the global economy not seen in recent history. 
And the Asian country of Pakistan is one that is hard hit.
According to reports, the fiscal year 2020 so far has turned out to be the worst year for Pakistans residents. The country has been hit very hard by rising inflation – which now is the highest in the world. This has prompted authorities at the State Bank of Pakistan (SBP), the country’s central bank, to hike interest rates. 
"Pakistan witnessed highest inflation not only in comparison with the developed economies but also with emerging economies," said the Inflation Monitor for April issued by the SBP on lats week end.
The aim of hiking up interest rates by the SBP was to try and bring down inflation rates for the current fiscal year. However the higher rate of interest had proven to be counterproductive because it further increased inflation as the private sector stopped borrowing costly money. That slowed down industrial growth and services, according to reports published by the media in Pakistan. The slow down meant reduced quantity of products available in the market which made the products pricier amid steady demand.
The inflation rate in Pakistan in January was at 14.6 per cent which was a 12 year high. In its effort to bring inflation control, the SBP had increased the interest rate to 13.25 per cent back then.
But after the outbreak of the novel coornavirus pandemic in the country as well as around the world, the already fragile economic situation was severely hit because of a contraction in demand. That temporarily brought down inflation which consequently prompted the SBP to lower interest rates to 5.25 per cent within just three months.
The rate cut announcement came as inflation slowed down, falling to 8.2 per cent in May, much lower than the SBP projections for the month. The July-May inflation for the current fiscal year slipped below to the State Bank's earlier projection of 11 per cent to 10.94 per cent. The number is expected to drop further in June.
In its efforts to bring inflation down further, the Pakistani government slashed petroleum prices thrice during the past two months with a drastic reduction I the cost of production and transportation which consequently helped to reduce inflation as well.
The SBP has provided relief amounting to hundreds of billions in the form of principal payments deferrals, debts rescheduling and lending on easier terms for industrial sector to avoid massive layoffs.