Inflation to Trigger Steep Rise in Inequalities in Pakistan

Participants of an advisory conference on Wednesday cautioned the government that Pakistan’s record-breaking inflation might aggravate inequality and advocated evidence-based financial policy to promote economic justice.

Sustainable Development Policy Institute (SDPI) and Friedrich Ebert Stiftung (FES) organized the meeting, headlined ‘Evidence-based Advocacy on Policies for Economic Justice and Development’.

According to keynote speaker, Mirco Günther, Head of FES (Asia & Pacific), think tanks or research organizations may play an important role in the design of monetary policy that can help governments provide economic and social justice.

He stressed that Pakistan has long been plagued by inflation, which might result in more inequities. He also emphasized the need for matching pricing stability in order to thrive socioeconomic fairness in society.

While presenting the findings of the report “Monetary Policy for All,” SDPI Deputy Executive Director, Dr. Sajid Amin, recommended that the State Bank of Pakistan (SBP) set a 5 percent level of inflation for the coming years because lowering the target rate of inflation without corresponding wage increases reduces the purchasing power of the average citizen and impedes economic justice.

He also advised keeping the informal sector’s inflation objective below 5 percent since it is more prone to economic shocks. He advocated for upgrading commercial banks’ regulatory frameworks in order to increase financial inclusion, as 92 percent of their activities are based on larger investors, resulting in more informal borrowing.

He suggested many potential initiatives to bring the social implications of monetary policy to light, including quarterly social justice monitoring, the presentation of landmark reports on measures for economic justice, and the expansion of this approach to the regional level.

According to Ali Kemal, Chief of the Sustainable Development Goals (SDGs) Support Unit, Ministry of Planning Development & Special Initiatives, interest rates are ‘the income of capitalists,’ and rate increases intensify social inequalities by contributing to inflation. 

He also emphasized the importance of coordinating inflation targets for social justice in fiscal policy after discussion with the central bank, rather than exclusively based on political interests.

He underlined the importance of improving financial facilities for Small and Medium Enterprises (SMEs) through financial institutions and capitalizing on the potential of digital money, which is currently underutilized in Pakistan.

Dr. Abid Q. Suleri, Executive Director of SDPI, warned of the triple-C crisis’ impact on nations like Pakistan, which he believes would be worsened by energy inflation. According to him, in this event, economic inequities would worsen, and energy will be either inaccessible or costly.