About 6,000
containers continued to remain stranded in Pakistani Ports, including thousands
of tons of poultry feed ingredients that pushed chicken prices to a record
earlier this year. The logjam is aggravating inflation that has lingered above
20 per cent since June as the government limited imports amidst scarce foreign
exchange reserves according to media reports. Pakistan’s inflation quickened to the fastest in almost 48 years in
January, 2023 as thousands of containers of food items, raw materials and
equipment remain stuck in Ports after the cash-strapped government curtailed
imports
Foreign-currency
reserves have dwindled to a nine-year low of $3.68 billion, equivalent to less
than a month of imports while local banks have been refusing to issue letters
of credit, leading to a standstill that puts businesses at risk of shutting
down. The local currency plunged to a record low recently after money
exchangers abolished the limit on the dollar-rupee rate in the open market to
curb the black market.
A more
market-determined currency may help Pakistan secure more money from the
International Monetary Fund, whose loan disbursement to the nation has seen
multiple delays.
The latest inflation
print is higher than the central bank’s November forecast of 21 to 23 per cent
for the year ending June, which was already revised higher from a projection
made in October. Consumer prices rose
27.55 per cent from a year earlier, according to data released by the
statistics department recently. Inflation is at the highest since May 1975,
according to central bank data.
The latest reading
comes a week after the State Bank of
Pakistan increased its benchmark rate to the highest in more than 24 years to
help stabilize an economy that’s spiraling deeper into crisis amid supply
shortages, sky-high prices and funding crunch. Pakistan’s troubles worsened
after last year’s devastating floods that amplified the impact of political
turmoil and the fallout from the war in Ukraine. It will likely continue to
accelerate as the government scrambles to fulfill the International Monetary
Fund’s aid conditions to secure much-needed dollars.
We see inflation climbing in
coming months on a combination of rupee depreciation and hikes in fuel prices and
electricity tariffs. The government could raise additional taxes on the IMF’s
insistence. This will likely push the State Bank of Pakistan to increase
interest rates further according to informed sources. |