A hyperinflation is mainly caused when there is excessive, drastic growth in the supply of paper money. As the destruction of currency reaches its peak, hyperinflation happens. In Pakistan monetary and fiscal authorities are regularly issuing large quantities of money to pay for a large stream of government expenditures thus money in circulation is now much higher than the level of total output of the economy.
It has resulted in rapid fall of the purchasing power of our currency and the rise of prices of commodities, and its impact on the daily life of common people has been overwhelming. In fact, inflation is a form of taxation in which the government gains at the expense of those who hold money while its value is declining. Due to devaluation of currency and decrease in its value, the purchasing power of the people of Pakistan has reduced drastically.
In fact hyperinflation is considered to be a very large taxation scheme. Pakistan’s consumer price index, the indicator for inflation, has soared to the highest level in its history and has sparked high inflation pushing the interest rate hikes by the State Bank adversely affecting the investment and rate of employment.
There are several other causes that are triggering high inflation in Pakistan, including severe economic depression, aftermath of war on terror, imbalance between supply and demand, excessive money printing and rapid growth in the supply of money, Government of Pakistan is physically printing paper currency faster than the rate at which it is devaluing, absence/ non adherence of legal tender laws and price controls in Pakistan to prevent discounting the value of paper money relative to gold, silver, hard currency commodities, and lower growth in the output of goods and services.
Capitalism is also now being blamed for high inflation as it is fundamentally based on greed and is immoral; that it enables the rich to get richer at the expense of the poor; that free markets are the places where the most ruthless operators unfairly crush their smaller competitors and where the cost of vital products and services, such as food items, health care, education and energy are beyond the reach of those who need them; and that capitalism unchecked breeds corruption and encourages obscene bonuses, excessive pay packages and unwarranted golden parachutes.
Pakistan is a nation blessed with abundant human and natural resources. Despite all these Pakistani citizens suffer from widespread poverty; the economic output is low in both the private and the public sector due to corruption, wrong policies, inefficiency, erratic power supply, poor infrastructure and unrealistic policies. Pakistan is dependent on foreign loans despite earning billions through exports, remittances and having sufficient agricultural land, water and manpower. It reflects deeply flawed economic planning otherwise its economy can be sustained without foreign aid.
It is better for economy like Pakistan to set its performance targets not only in terms of low inflation rates but also in terms of human development, efficiency, productivity, and low exchange and interest rates. The problems of inefficiency, bribery and corruption, which characterize the public sector of the Pakistan economy, need to be addressed through effective measures.
There is a growing fear that with the surge in global growth, demand for food will increase, pushing food prices higher. Similarly, global growth will create more demand for oil, which would push oil prices higher. An average price of oil beyond dollar 80 per barrel will not be sustainable for our economy; the need for an oil hedging strategy is vital. Necessary steps need to be taken well in time in the light of these apprehensions.
Tax reduction to the Banks from 58 percent during 2001 to reduced rate of 35 percent during 2006 has mounted considerable pressure on the national exchequer. The banking sector being enjoying excellent market conditions; tax rate need to be at least restored at previous level simultaneously bringing the corporate sector at par with Banks.
The government’s policies should be devoted to ensuring that the following conditions are present in the economy: The rule of law is of paramount importance for a vibrant economy which may be ensured at all costs. Respect for property rights is also a critical part of the rule of law. Starting any legal business should be easy to do requiring no multiple licenses and procedures and the involvement of multiple government agencies.
A strong and stable currency achieves better in less time. Low tax rates on income, profits and capital gains foster more risk taking and higher growth, bringing about a richer economy with a higher standard of living…along with higher government revenues. A semi controlled economy can bring better results.