Muneeb ur Rehman

Pakistan has been consistently witnessing double-digit inflation for the last 18 months. China's multifaceted approach to tackling inflation offers the country numerous valuable lessons to learn. Liaqat Ali, Executive Director at the Centre of Excellence for China-Pakistan Economic Corridor (CPEC), Peshawar, said this while talking to WealthPK. The current wave of inflation in the country is rooted in misplaced policies, declining agricultural productivity, and other domestic factors, he explained.

According to the Pakistan Economic Survey, the Consumer Price Index (CPI) increased to 36.4% in April 2023, surpassing 35.4% recorded in the previous month. This is significantly higher than 13.4% recorded in April 2022. On average, the CPI inflation for July-April period of FY2023 reached 28.2%, in stark contrast to 11.0% reported during the same period in the previous year.

In order to address the supply-side issues, he said China was implementing supply-side reforms to boost productivity, reduce production costs, and enhance the overall efficiency of the economy. Moreover, food inflation is also high in Pakistan. The Chinese government has adopted certain policy options that Pakistan could apply to ensure food availability at affordable prices. “In addition to extending interest-free loans to small-scale farmers, there is a collaborative effort between the private sector and farmers with limited land holdings. In this partnership, the farmers supply agricultural raw materials to the private sector, enabling them for further value addition,” he said.

This kind of collaboration, he said, would assist Pakistan in securing a stable food supply, thus mitigating the risk of supply-side inflation. Underscoring the importance of import diversification in reducing inflation, Liaqat Ali said, “Like China, Pakistan should diversify its imports to reduce dependence on specific countries or products so that it may mitigate the impact of supply disruptions or price hikes”. Investment in infrastructure development is yet another policy China has adopted. It is helpful in improving logistics, reducing transportation costs, and enhancing the supply chain, which can further help curb inflationary pressures, Liaqat mentioned. Under the current high inflationary regime, Pakistan can draw scores of lessons from China to assist it in reducing the upward trend of prices.

Credit: INP-WealthPk