EXPERTS Blame policy flaws for persistent high inflation

shailesh agarwal (professional accountant)   (7642 Points)

02 March 2009  

 

EXPERTS Blame policy flaws for persistent high inflation
Sunday, March 01, 2009

By Mansoor Ahmad



LAHORE: The government seems helpless in controlling inflation which remains perched at a high level compared to other countries of the region where inflation has fallen sharply.



Though Adviser to Prime Minister on Finance Shaukat Tarin claimed two days ago that inflation was going down, official statistics showed that inflation this week in fact increased to 23.4 per cent compared to the corresponding period of last year.



Monthly inflation will be above 20 per cent, but it has eased from the peak of 25 per cent in October 2008. The decline may look good to economic managers, but is not in line with other countries of the region which faced similar high inflation in 2008.



Inflation in Sri Lanka has fallen from 27.5 per cent in August 2008 to 7.6 per cent in February 2009. India’s inflation rate has dropped from 12.91 per cent in August 2008 to 3.36 per cent in February 2009. Inflation in Bangladesh is down to manageable 5 per cent from the peak of over 12 per cent in November 2008. China’s inflation rate has declined from 9 per cent in February 2008 to only 1 per cent in February this year.



Economic experts point out that there are flaws in economic management in Pakistan, which deny consumers the benefit of enjoying low prices of goods and commodities. This tendency, pursued both by the state and the private sector, stems from weak governance, absence of government’s writ, inability of state to control corruption and generate adequate revenues.



Senior economist Naveed Anwer Khan, FCA, said the finance adviser had openly admitted that the federal government planned to earn Rs100 billion this fiscal year by capping prices of petroleum products at present levels. “This indirect tax on consumers is one reason for high inflation.”



Chartered Accountant Yunus Kamran said though petroleum prices were still very high, the government did reduce them by 25-30 per cent during the past six months. However, he added transport fares had remained almost the same as at peak rates of petrol and diesel, which he termed “an administrative failure”. Fares of public transport and goods carriers should have come down by 25-30 per cent, he suggested.



Faisal Qamar, ACA, said edible oil prices should have gone down by at least 30 per cent even after accounting for rupee depreciation. But the federal government after prolonged negotiations could achieve a reduction of only four per cent in edible oil rates.



He said cement prices had increased despite a decline in demand while car rates were extraordinarily high due to government protection. These factors were keeping inflation high and the government lacked the writ and mechanism to force producers to market their products at reasonable prices, he added.



Citing an example of China, Certified Public Accountant Asif Ali Shahid said despite expanding at an annual rate of nearly 9 per cent, China’s economy had exhibited a marked cyclical pattern. Periods of rapid growth accompanied by accelerating inflation were followed by contractions during which both growth and inflation fell.



In Chinese policies, he said, things worth watching were economic decentralisation, government’s commitment to the state sector, its credit plan and credit control.