Stagflation occurs, when inflation and unemployment are rising. The commonly used indicator of stagflation is the misery index, which is a combination of unemployment and inflation rates. With the growth rate decelerating and inflation increasing, economic miseries of people are bound to surge.
According to monetarists, inflation occurs when too much money chases too few goods and services. In our scenario, massive printing of notes to bridge the huge budget deficit is a key factor behind inflation.
For the growth to embark upon a sustainable track, it should be noninflationary led by technical and economic efficiencies. Stagflation is a slayer of democracy and economic development.
The oil price hike in the early 70s had been empirically cited by many economists as one of the major causes of stagflation in the developed countries.
Like the oil price shock occurred nearly four decades back, the power outage is the major supply shock in Pakistan, which is slowing down economic growth, labour productivity and increasing joblessness rate and health costs.
With the interrupted power breakdown, domestic investors are reportedly shifting textile units to Bangladesh, while many other industries are on the verge of collapse.
The power outage is not a sole phenomena relating to the circular debt, line losses, power theft and high power demand and low supply generation, but these are the few symptoms flowing out of the public policy, granting the sole monopoly to the state to control the energy business with a highly complex and multi-layered system, being operated by almost dozens of power producers, distributors and utility bills collectors. The business broth is likely to be spoiled when it is cooked by so many cooks passing the bucks from one to another.
Until the energy business is deregulated in entirety and kept in the hands of competitive market forces, the problem is likely to aggravate in terms of inefficiency, pilferage and shortfalls of energy requirements, power riots etc.
The fully functional private sector, will not only offer several choices to electricity consumers in terms of prices, efficiency and performance, but will solve the load shedding syndrome as well.
The public energy policy in essence needs to be simple, which should encourage national and international investors to bring in the country efficient technologies and investment and offer product mix in shape of renewable energy, hydropower and other environment friendly power generation sources.
Pakistan is the fourth largest milk and cotton producer in the world, enriched with mineral resources and tourists’ spots. According to some economists, Pakistan has the potential of attaining a growth rate of 7.0 % per annum, but the resources are highly under-utlised.
Right blend of public policies facilitating an environment of private sector-led growth offer the best choice.
The views expressed in this article are those of the author and not necessarily those of The Lahore Times.