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ISLAMABAD: Rising inflation, particularly food inflation (highest in the history of Pakistan), increase in administered prices of petroleum products, electricity, and gas and continuous depreciation of the country’s currency have a negative impact on household consumption which will lead to greater poverty, particularly in rural areas.

This was stated in Building Resilience with Active Countercyclical Expenditures (BRACE) first quarterly progress report (Quarter ended 31 December 2022) uploaded by Finance Division on its website on Thursday.

The report noted that persistent challenges are fuel prices, edible oil, poverty, inflation, floods.

BRACE programme: $1.5bn loan agreement signed with ADB

It added that overall, the impact of Russian-Ukraine war on the economy of Pakistan is significant, mainly due to high fuel prices.

Fuel prices have relatively high multiplier effects and high fuel prices can cause reduction in economic activity across different sectors. High fuel prices not only reduce the direct consumption of petroleum products but also shrink other sectors such as electricity production, industrial demand, goods transportation, travelling, mining, construction, and many others.

After fuel, edible oil has the most impact on the GDP and household consumption, but it is almost double for the poor. Due to the relatively higher elasticity of oil with its price, demand shock is greater than wheat and almost double in poor households. As Pakistan remains largely dependent on imported palm oil (all from Malaysia and Indonesia), it remains highly prone to any upward shock in prices and can also cause deterioration in the healthy diet structure of children.

It added that in order to support the government’s efforts to provide immediate relief to the people of Pakistan, the Asian Development Bank (ADB) approved a Countercyclical Support Facility Loan with a size of US$ 1.5 billion on 21 October 2022.

Copyright Business Recorder, 2023

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