Amidst the tensions with India, inflation in Pakistan has risen to 8.2 percent in February from 7.2 percent in January. This is the highest inflation rate in the country in last four and a half years. Last time Pakistan registered consumer inflation at 8.2 percent in June 2014. This is despite the fact that lending rate was increased to 10.25 percent since January last year. The core inflation (excluding food and energy) increased to 8.8 percent in February from 5.2 percent in previous year in the same month.
The Pakistani currency has shed 26 pc value in last one year. The value of Pakistani currency against dollar has fallen sharply in last one year from 110.76 rupees in February 2018 to 139.66 at the end of last month. The newly elected Imran Khan government has borrowed heavily from the State Bank of Pakistan, the central bank of the Islamic republic. In addition to that, the country has printed more currency in last few months with currency in circulation expanded to 390 billion Pakistani rupees in last seven and a half month from 177 billion in the same period year-ago.
The heavy borrowing from central bank, exuberant currency printing and war tensions are reasons behind the rise in inflation rate. The economic growth of Pakistan in the current fiscal year (ending on July 2019) is expected to be seven year low somewhere around 3 percent. The yearlong inflation is estimated between 6 to 7 percent. The inflation in the country is rising faster than GDP growth which means per capita income of people in the current fiscal year is expected to fall. The GDP growth in the country is led by consumption with its share in economy rising from 91.8 percent in FY14 to 94.5 percent in FY18. The share of investment in the economy of Pakistan is very low which means that the economy will not be on good growth trajectory in the upcoming years.
The fiscal deficit of the country is around 2300 billion Pakistani rupees or 6.6 percent of GDP. The currency of Pakistan has shed quarter of its value and exports did not increase even after this. The Current Account Deficit (CAD) of Pakistan was just 2.5 billion in 2018 and increased to 19 billion dollar in 2018. The Pakistani government has debt obligations worth 9 billion dollars and if IMF refuses to bailout the debt ridden government, the country would be declared bankrupt. Pakistan is seeking 12 billion dollar bailout package from IMF to repay its debt obligations.
For years the country has used its strategic geopolitical location to get money from United States. Pakistan has become a pawn in the hands of US in its proxy war with USSR. For years, US pumped billions of dollars in Pakistan as financial and military aid. In the post-cold war world it allied with China due to their mutual fear of India. But as economic clout of China grown over the years, the relationship of equals became like that of a colonial subject and master.