Delayed action main reason behind higher inflation: Finance Division – Newspaper

ISLAMABAD: The government said on Monday that delays in policy adjustments in fiscal year 2018 mainly drove the rise in inflation that affects the lower and middle classes. The finance government has presented a number of reasons that lead to an increase in inflation, greatly affecting the middle and lower middle class.

In a detailed statement, the Finance Division listed the reasons for the increase in inflation, which was largely led by lagging adjustments during fiscal year 2018 in the form of an increase in gas and electricity prices.

To make the correction, the government adopted prudent spending management and a contractive monetary policy to compress aggregate demand. To this end, the State Bank of Pakistan (SBP) raised the policy rate to 13.25 percent to stop inflationary pressures.

In this regard, the Finance Division has developed a strategy to control inflationary pressures in the economy.

In explaining the measures to control inflation, the Finance Division said the government had discontinued SBP loans that had an inflationary impact, and switched to commercial banks to obtain loans that have less. Similarly, the National Committee for Price Monitoring (NPMC), in consultation with the provinces, regularly monitored prices and the supply of essential foods and non-food items.

On the expense side, he said the government was following austerity measures with a full restriction on complementary subsidies. This is to help control aggregate demand to relieve inflationary pressure in the country.

The government is also committed to imposing the burden of energy price adjustments on those who can pay instead of the poor segments of society, the statement said. A subsidy of Rs226.5 billion in budget had been allocated to customers using less than 300 units of electricity per month, which will benefit around 75{7be40b84a6a43fc4fae13304fce9a2695859798abfc41afd127b9f8b21c5f9c5} of total electricity users.

The Economic Coordination Committee has already approved a subsidy of 1.5 billion rupees to provide assistance to the "roti tandoors" for the provision of cheap bread.

To improve the socioeconomic status of the common man and boost the agricultural sector, the government is implementing the "National Agricultural Emergency Program" and has approved 13 mega projects at a cost of Rs287bn. The plan is being implemented with the coordination of all provinces with the objective of increasing crop yields, fisheries and livestock development, as well as water conservation, the statement continued.

To facilitate the industrial sector, the government provides a series of specific subsidies and incentives that include electricity and gas, export development package, as well as Long Term Trade Financing (LTFF) and Export Refinancing Scheme (ERS) at rates cheaper.

Regarding the reports on job creation, the statement pointed to the "Naya Pakistan Housing Program", which is planned to build 5 million homes in the next five years. With its strong backward links, the development of the housing sector will also lead to a significant increase in the growth of at least 40 different industries.

Similarly, the "Kamyab Jawan Program" launched recently had a two-level program in which the first ranged between 0.1-0.5m and the second between 0.5-5m. Loans for level 1 are available at a subsidized rate of 6 percent, while for level 2 it is 8 percent.

Posted on Dawn, October 22, 2019

Source: https://www.dawn.com/news/1512171/delayed-action-main-reason-behind-higher-inflation-finance-division

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