Let us explain in the simplest terms how economic crises arise, and how they can be dealt with. About 95% of vegetables and fruits sold in Muzaffarabad are procured in Mansehra. Suppose there is a climate change in Mansehra, severely affecting the production of crops and the supply of vegetables and fruits in Muzaffarabad. Now in Muzaffarabad the quantity of vegetables and fruits available is reduced and the prices of available fruits are very high. People cannot afford to buy vegetables and fruits in their normal income, the consumption of these items has decreased in Muzaffarabad. Children are suffering from malnutrition due to lack of adequate food and food and drinks have become expensive at hotels.
The above situation is a mini-economic crisis, caused by a lack of supply.To deal with this economic crisis, the Government of Azad Kashmir can take three types of measures.
First option for the government is to withhold the money of the Benazir Income Support Program, freeze loans to vegetable traders and discourage people to buy vegetables and fruits, so that less vegetables and fruits are bought and price is reduced. It is a demand management policy aimedatcontrolling prices.
Will the Azad Kashmir government be able to control this inflation in this way? No, because only five percent of the vegetables and fruits produced in Mansehra are supplied to Muzaffarabad. Even if the demand in Muzaffarabad ends completely, there will be no significant difference in the demand in the vegetable market of Mansehra, so it is very unlikely for the prices to decrease. On the contrary, if difficulties are created for vegetable and fruit traders, there is possibility of increase in the prices due to the increase in cost of business.
In addition, due to demand management, traders of fruit and vegetable will be negatively affected, the unemployment will increase and the real income of people will decrease, especially the lower income groups will be more affected by these measures.
Another option for the government is to provide technical and financial support to the local people of Muzaffarabad to grow vegetables and fruits, provide loans to people to purchase seeds and other inputs and encourage them to plant vegetables. This strategy is unlikely to bring down prices immediately, but over a period of time it will start to show positive results.
Suppose with the financial and technical support of the government, 500 farmers start vegetable farming in the vicinity of Muzaffarabad, after about three months the local produce of vegetables will start coming to the market and in six months the local produce will be abundant in the market. Due to abundant production, the prices of vegetables and fruits will start decreasing in the market and after some time the economic crisis will end. Taking this option, many people will get new employment, and the goal of self-sufficiency at the local level will also be achieved.
When local production starts, it is likely to face a more severe wave of inflation, because of the need to purchase machinery and other equipment to start local production. Suppose there are two different currencies in use in Mansehra and Muzaffarabad, then in such a case, the currency of Mansehra will be required for purchasing in the market of Mansehra, which will increase the price of the currency of Mansehra.
This rise in currency prices will further increase the prices of all imported goods in Muzaffarabad, leading to further inflation. However, imported equipment can be used for multiplying production, and if adequate production is obtained from this imported equipment, after a few months the imports will decrease, which will stabilize the value of currency.
A third possible option for the Muzaffarabad government is to take more loans from its friends and buys vegetables and fruits to supply in the local market at a subsidized rate. This may keep people happy temporarily, but this strategy may not be successful in the long run. No friend will be willing to lend you money continuously for a long period of time and when the chain of further borrowing is broken, there will be a severe crisis in the value of the currency, which will expose the residents to severe inflation.
The above comparison made it clear that the best option is to tolerate the immediate constraints but prefer local production. This is exactly the kind of situation we are facing at the national level. Our local production is very less compared to our requirements and we import many of the items we need. Whenever the world faces inflation, it affects Pakistan in two ways. First, the dollar value of imported goods is increases, second, due to the increase in demand for dollars, the value of the dollar also increases. These two factors together driveup the prices very quickly. Demand management strategy is being used for the last five years to deal with this situation, but the world market is so big that even if we reduce the demand to zero, even 1% difference in the world market is not possible. Until the prices are not decreasing in the international market, it is not possible to decrease the prices in Pakistan.
It is a simple matter that can be easily understood by the common man but most of the economists are unable to understand it. In the current situation, the best strategy would have been to facilitate people to increase the production of those commodities which are locally possible, but for the last five years we have been following the exact opposite strategy are, and interest rates have been raised to such an extent that it has become virtually impossible to do business with loans. Due to this, the purchasing power of people is declining and unemployment is also increasing.
Globally, the path of monetary expansion is adopted to deal with the crisis, i.e., people’s access to financial resources is made easier, but for Pakistan and other countries like it, the IMF’s advice is different.
Even today, if agricultural emergency is imposed and it is determined that Pakistan will not import agricultural commodities, then the process of getting out of the economic crisis can begin in six months. But if they continue to look for temporary peace by taking pain killers from the IMF, then the next twenty years will pass in the critical juncture of Pakistan.