HOSE who think the latest round of monetary tightening by the State Bank will restrain the soaring price inflation or bring us closer to the long-awaited staff-level agreement with the IMF are mistaken. Economists believe that the high inflation in Pakistan is not being driven by a large current account deficit or growth in money supply, but is being fuelled primarily by government policies, such as the imposition of unprecedented curbs on imports, that have brought economic activity to a grinding halt over the last several months. Another major factor feeding into price inflation is the constant erosion of business and public confidence in the capability of the country`s present economic managers to contain the rot, let alone reverse it, as is evident in the public`s expectations of further currency depreciation. The central bank`s decision to hike the benchmark policy rate by 1pc to 21pc on Tuesday will have only as much impact on the rapidly surging prices as previous rounds of monetary tightening did, extending the period of stagflation a combination of high inflation and economic stagnation. Little wonder the World Bank has projected in a new report that GDP growth will massively decline to 0.4pc this year. The ADB is a bit more optimistic: it expects Pakistan to grow by 0.6pc, projecting average inflation to balloon to 27.5pc.

With the economy in a tailspin, the World Bank has warned that the `country`s outlook is subject to major downside risks, which, if they materialise, could result in a macroeconomic crisis`. The risks include non-completion of the IMF programme, and failure to secure expected rollovers, refinancing, and new financing from key bilateral partners. Unfortunately, the ongoing political instability has amplified these risks in recent months as neither the IMF nor potential bilateral lenders appear to be in a mood to extend help unless we put our house in order. Few care that 4m Pakistanis fell below the poverty line last year, or that the people are ready to risk their own and their children`s lives for free meals and ration. The rate hikes may be needed, but these are no longer enough to control inflation or stabilise the economy. The question now is whether our politicians and other stakeholders have what it takes to rise above their political wrangling and focus on restoring the world`s confidence in the country.