Need to control inflation
Monetary policy plays a vital role in controlling in inflationary pressures in the economy. State Bank of Pakistan announces policy for banks so that inflation could be controlled. State Bank governor Shahid H Kardar while addressing the members of the business community at a function organised by the FPCCI, was quite lucid in elucidating the limitations of monetary policy in containing inflationary pressures. Pakistan's economy had experienced an inflation of 66 percent between October, 2010 and June, 2007 or almost twice the level of inflation of 36 percent seen during June, 2003 and June, 2007. State Bank governor dilated upon the factors which had cast a negative impact on the rise in prices. Petroleum products, electricity and gas with subsidised prices had resulted in government borrowings. Borrowings of PSEs, which partially explain transfer of subsidies from the government's budgetary expenditures directly to the power sector entities, grew by 305 percent during October, 2010 and June, 2007. With the increase in fiscal deficit, the stock of government borrowings from the SBP was now in excess of Rs 1500 billion as compared to only Rs 53 billion at the end of June, 2003. He also said that monetary policy had played its part in correcting the macroeconomic imbalances, but other government policies have not been that supportive. Strategy in future to control inflation must include co-ordinated. Delay in implementation of such strategy would make the policy tradeoffs much more difficult resulting in continuing uncertainty to meet desirable economic outcomes". Pakistan is unable to raise enough revenues to meet its expenditures and secure economic future and may face severe problems. The main elements of critical reform efforts needed to pull the country out from crisis. Efforts should be made to remove hurdles to improve public finances of the country. Kardar has justified the policy response of the State Bank but has refrained from advising the government on precise policy measures for obvious reasons. Government's mismanagement of public finances may be the main cause and the State Bank also needs to play its due role in maintaining price stability.