Causes of price hike in Pakistan

Prices In an Islamic State

Presented by: Amina Nadeem & Zainab Munir

Introduction
The main goal of an Islamic State is to provide it’s residents
justice without any kind of definition.

“We sent our messengers with clear signs

and sent down with them the Book and the
Measure in order to establish justice
among the people...” (Quran: 57:25)

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STAKEHOLDERS
1. The State
 The Government
2. The People
 The buyers
 The sellers

Tasir (Origin of the word):

Word Tasir is used in the Arabic language for ‘price control' or
‘price fixation’. It is derived from the root word si'r, which
means the determination of prices.

Types

There are two types of price fixation in Fiqh. In the first

category, prices are determined by the natural factors. Allah
increases and decreases the prices of goods. There can be no
objection on this kind of price fixation because it is Allah who
divides the livelihood (Rizq) between the people, and the
natural factors determine the price in this system and there is no
interference from anybody.

However in certain cases, the govt. fixes the prices of goods

and services for the public interest. The price fixation by the
govt. is debatable and is subject to certain conditions. Price

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control means the control of food prices and its quality and
quantity and implementation of fixed prices by the govt. All
Muslim scholars are unanimous on the point that meaning of
price control is the intervention of govt. for price fixation. It
can be done through supervision of the market by the head of
the state, and this intervention for price fixation is for the
administration of justice in the public interest.

Ref; Shawkānī (1173-1255 A.H/1759-1839 A.D) defines it as: ْ

» ُْ ‫طا ال َ ر ُ ْم َ َأ ْن أي َ ُو ه ُ ري ِ ع ْ ِور التَّس ُ ُأم ْ ْ ِ م َ ِيل َ و‬ ْ ‫ك َأو ُ ه ُ َُّواب ن ْ ُن َأو‬
َ ‫ُّسل‬
ْ ،‫ُّسوق َأ ْن َال ي ال َ ْل ا َأه ً ْر َني َأم ِم ِ ل ْ ُس ِر َك ْالم َذا‬ ِ َ ‫َْ ُّل م َ ت َ ع ِ ت ْ ُوا َأم يع ِ ب‬
ْ ‫ » ة َ َ ْصلَح م ِ ل َصا ِن ُّ ْق الن ْ َأو ِ ه ْ لَي َ ع ِ ة َ د َ َِي الز ْ ْ ِ ُوا م ع َ ن‬4 ‫ِ ِسع َّإال ب ْ ُم ه‬
‫في‬
َ ُ ‫ م‬The Government gives the order to the seller not to sell
their goods but only according to the fix prices for the public
interest and forbids from any increase and decrease in price

Goal; public interest;welfare state

LAWS; Islām provides a complete code and principles for trade

and business. The Holy Prophet (‫( صلى هللا عليه وسلم‬laid down
rules and regulations for the free markets, which leave no room
for black marketing, profiteering, hoarding, exploitation or
deceitfulness.7 In Islamic economics, it is very important to
control the desire of monopolized the markets

IN THE WORDS OF PROPHET; The Holy Prophet ( ‫صلى هللا‬

‫( عليه وسلم‬once said about the import that: ‘َ Allah regulates prices

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and gives shortage, as well as, plenteousness, and He gives
livelihood

{This ḥadīth is used as evidence against price fixations. It is

argued that this ḥadīth prohibits intervention, because it will
restrain supply of foreign goods and leads to shortage of
resources and will create black marketing. The Holy Prophet (
‫( صلى هللا عليه وسلم‬encouraged suppliers; because he wants the free
markets to prevent deficiency. The principle set by this ḥadīth
does not restrain intervention in cases of monopoly. The Holy
Prophet (‫( صلى هللا عليه وسلم‬forbids from price controls in normal
conditions.}

Pakistan’s inflation rate over the last 10 years (2000-2020)

Pakistan Inflation Rate - Historical Data

Year Inflation Rate (%) Annual Change

2020 9.74% -0.84%

2019 10.58% 5.50%

2018 5.08% 0.99%

2017 4.09% 0.32%

2016 3.77% 1.24%

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 2015 2.53% -4.66%

2014 7.19% -0.50%

2013 7.69% -1.99%

2012 9.68% -2.23%

2011 11.92% -1.02%

2010 12.94% -0.71%

2009 13.65% -6.64%

2008 20.29% 12.69%

2007 7.60% -0.32%

2006 7.92% -1.14%

2005 9.06% 1.62%

2004 7.44% 4.53%

2003 2.91% -0.38%

2002 3.29% 0.14%

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 2001 3.15% -1.22%

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 Causes Of Price Hike in
Pakistan

Main Causes

 Massive Devaluation
 Interest Rate
 Heavy Taxation
 Mafias & Scams

Massive Devaluation:

Rupee/dollar devaluation has always contributed towards

inflation in the economic history of Pakistan. The rupee
devaluation also led to an unbearable rise in domestic prices
as most critical imports such as petroleum products,
electricity, gas and edible oil became very expensive and
contributed to high inflation. In addition, the foreign
(external) debt and its interest payments also became
unbearable. In addition, an amount of over Rs4,000 billion
has been the capital loss through increase in the public debt
due to devaluation.

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Interest Rate:

Table 1. Inflation Rate of Asian Countries (2000-2013)

(Annual % Change in CPI)
S Year
l. Cou 2 2 2
20 20 20 0 0 20 20 20 20 20 20 20 20 0
ntry
00 01 02 0 0 05 06 07 08 09 10 11 12 1
3 4 3
South 6. 3. 3. 5. 6. 5. 5. 5. 5. 11 11 10 9.
Asia 1 8 5 0 3 3 9 7 5 .2 .6 .3 1 8.0
- .9 10 7.
Afgha 5. 24 13 12 5. 7. 8. 8. .2 2
1 nistan - - 1 .1 .2 .3 1 0 0 3 7.6
Bangl 2. 1. 2. 4. 5. 6. 7. 7. 8. 5. 8. 10 6.
2 adesh 8 9 8 4 8 5 2 2 0 4 1 .7 27.5
Bhuta 3. 2. 2. 3. 4. 4. 5. 5. 4. 7. 8. 10
3n - 4 9 1 6 8 9 2 0 4 0 8 .97.0
7. 3. 3. 5. 6. 4. 5. 5. 5. 10 12 8. 7.
4 India 1 7 4 4 4 4 4 0 0 .9 .0 5 76.9
- - 4. 6. 12 12
Maldi 1. 0. 0. 2. 6. 3. 3. 7. 6. 0 6 .8 .1
5 ves 2 7 9 9 4 3 5 0 0 2.3
3. 2. 2. 4. 4. 4. 8. 6. 5. 11 9. 9. 9.
6 Nepal 5 4 9 8 0 5 0 4 0 .1 3 3 59.0
Pakist 3. 4. 3. 3. 4. 9. 7. 7. 6. 13 13 12 10
7 an 6 4 5 1 6 3 9 8 5 .7 .9 .2 .19.0
Sri 1. 12 10 2. 7. 10 9. 14 10 .6 2. 5. 3.
8 Lanka 5 .1 .2 6 9 .6 5 .5 .0 8 1 02.3
Source: South Asian Economic Report (SAER) 2013:

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 An interest rate basically is the rate at which interest is paid
by a borrower (debtor) for the use of money that they borrow
from a lender (creditor). Interest rates are typically noted on
an annual basis. An interest rate per year has been taken as
independent variable. The policy rate was almost doubled
within a period of one year, from around 6% to 12% and
subsequently to 13.25%, where it was kept for nearly a year.
It is claimed by the State Bank of Pakistan (SBP) that it was
targeting headline inflation as well as forward looking policy
to remain ahead of inflation.

Heavy Taxation:

The Pakistan Economy Watch (PEW) on Tuesday said the

industrial sector is going down due to heavy tax burden which
is blocking national development, revenue and employment.
Government continues to announce packages for the industry
but avoid balancing the tax regime which is tilted towards non-
productive sectors, it said. President PEW Dr Murtaza Mughal
said that the share of the industrial sector in GDP is 17 percent
but it is made to pay taxes up to 73 percent while the combined
share of trade and transport in the GDP is also 17 percent but it
is paying only 1.2 percent tax. The share of agriculture in GDP
is 21 percent but the tax collected from this sector is mere one
percent due to political reasons, he said, adding that stock
market capitalisation is almost 28 to 30 percent of the GDP but
this sector enjoys tax the burden of 0.03 percent which is
unjustified, he said.

Mafias and Scams:

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Pakistan has witnessed mega scams run by mafias associated
with the government since very long such as sugar, flour,
petroleum products and medicines, etc., which jacked up the
prices of these items to an extent where people have been
forced to pay annually thousands of billions of rupees extra to
buy the same quantities of goods and utilities.

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TYPES OF ECONOMIES AROUND THE WORLD

 Capitalist
 Socialist
 Islamic

A Comparative Analysis on Capitalism and Islamic Economic

System

In order to critique about any topic first we need to know about

overt and covert characteristic of that concept, and know about
their pros and cons. Besides, all the economic systems have
their own specifications, which shape their principles and make
it distinctive and identifiable base of these principles. In the
Islamic context, there is a believes about justice and fairness in
the economic field. There is no huge interest rate (Riba),while
it is a main characteristic of capitalism. According to Islamic
view point, human is deputy of God in the earth and has a
limited authority for ownership in terms of production whereas,
there is no such limitation for capitalism perspective. In Islamic
economic system there is a government intervention about
economic activity so that ensuring welfare of its poor citizens,
however likely, there is no such a support from capitalism
economic countries for their citizens. Moreover, some
distinctive specification for Islamic economic system such as
Abolition of interest, institution of sadaqat and Zakat, concept
of lawful and unlawful, equitable distribution of wealth,
prohibition of hoarding and stress on circulation of wealth,

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concern for well being of the poor which is not in capitalism
economic system. Whereas, capitalism is distinguished from
other perspectives due to existence of unrestricted private
ownership of means of production, trade and distribution;
economic freedom; profit motive as incentive for productive
activity; free market and competition; existence of monopolies;
banking and institution of interest; wide disparities in
distribution of wealth; economic exploitation of the weak by
the strong, etc.

But the real question is that;

Will a capitalist economy deliver?

Prices have gone up with no corresponding increase in wages,

weakening the purchasing power of the consumer. Prices of
sugar, cement, steel, hardware, wheat, vegetables, groceries,
poultry, dairy, meat, and other commodities have skyrocketed.
Questions arise; will just economic growth ensure distributive
justice? Will there be a concentration of wealth in a few
families of Pakistan?

The 10-year period of Ayub Khan is considered as the golden

era of economic development but without realising that it was
just the emergence of crony capitalism, bred on licences,
vouchers and subsidies at the cost of poor farmers.
The phenomenon of this unbridled capitalism was nurtured on
the philosophy of social utility of greed and trickledown to the

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common man. The laissez faire principle remained the driving
force where the invisible hand would take care of the toiling
masses. But neither the trickledown ever occurred nor the
invisible hand took care of the downtrodden. Only greed
surpassed all proportion.
During that period, the policy of encouraging industrial
concentration had two dimensions. In the first instance by
1968, as many as 22 families emerged which controlled the
finances. They controlled 66% of the industrial assets as well
as banks and insurance companies. In the second instance, the
policy had a negative fallout effect on East Pakistan. In a
reckless pursuit of growth, when it came to resource
allocation, selective areas and families of West Pakistan were
preferred. Where the return was much higher than East
Pakistan, where because of a relatively less developed
economic infrastructure and relatively uncertain political
conditions, returns expected were also much lower. In that
exploitative system the bigger fish ate the smaller fish. As a
result, class cleavages and regional disparities widened.
It is in the very nature of capitalism to expand. Self-interest of
the individual and class, multiplying and maximising profit are
the considerations. Capital has no emotion, no value and no
norm. Exploitation of the labour in the form of surplus value
produced, called profit, is just the aim.
In order to arrive at an objective analysis, one must not quote
isolated examples and data but compare such data on the basis
of the economic life of the general run of the population. The
uneven distribution of wealth and uneven development —
summed up as modern monopolist capitalism on a larger
landscape — prove that monopolies and cartel wars are
absolutely inevitable under such an economic system, as long
as private property in the means of production exists.

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The gigantic growth of industry and the remarkably rapid
concentration of production in ever-larger enterprises are the
basic features of capitalism. This transformation of
competition into monopoly is one of the most important — if
not the most important — phenomena of modern capitalist
economy.

Solutions, Suggestive Measures:

Ethical Solution in Islamic Financial System

Concept of wealth is quiet differ from conventional financial

system. Islam declared wealth is a blessing of Allah and a tool
to examine and punishment as well (See Khan, 2011).
Therefore, one has to earn and utilize wealth in a way as
described by Allah and His last Prophet Hazrat Muhammad
(SAW) Islamic financial system is not for individual only but it
cover all three aspects of economy e.g. private, public and
government sector. The IFS denied the interest rate. Quran and
Hadith clearly states punishment for earning through interest.
The interest free economy reduces the cost of production. This
increase the business activity base and people contribute in
economy on profit and loss sharing (Kia, 2008). There is no
inflationary pressure in Japan, America despite low interest rate
(Dr Ansari, 2010). Further to this Islam does not allow earning
by hook & crook but create enthusiastic to earn by hardship /

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business and fair mean. Capital circulation in business activity
reduces inflation (Khan, 2011).

HOW ISLAMIC FINANCIAL SYSTEM CAN REDUCE

INFLATION

The central feature of Islamic finance system is the prohibition

in the Quran of the payment receipt of RIBA (INTEREST).

Following are some points on how to control inflation through

an islamic financial system:

 No hoarding to manipulate supply & demand

It abords hoarding and the artificial manipulation of supply and

demand.

 No artificial money

The Islamic system does not only forbid Riba but also doesn't
allow us to loan what we do not own or have.

 Ownership of natural resources

Islam's solution based on it view of ownership and

permissibility of generating profits from natural resource. Islam
is the only system that defines three types of ownership;
individual, public and state property.

 Revival of dead land

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The PROPHET SAW informed us that whoever revives a dead
land can benefit from it. This presents a great incentive for poor
farm workers and other to take advantage of this Islamic rule an
the whole state would benefit.

Policy Implications
What govt, the state basically can do is make policies, make
sure they are implemented properly.
The study suggests that the policy maker should take tight
policies against reduction of inflation growth in the country by
implementing the tools such as controlling money supply in the
market through open market operation, setting up interest rate
and setting of bank reserve requirement.
Government of Pakistan should take serious steps to control the
inflation rate such as reducing imports & increasing exports,
reducing government expenditures, give priority to agriculture
sector, take serious consideration to food prices, increase &
utilize energy resources with low production cost and remove
security threats.
In the context of interest rate that includes very important
instrument used by the State Bank of Pakistan. Interest rates
play a pivotal role in controlling inflation rate in the economy
by increasing or decreasing the level of interest rate.
Continuous fluctuations in interest rate may decrease the
confidence of investors due to uncertainty about return on
investment. Therefore policy makers should take serious
consideration about changing rate of interest rate while
controlling inflation rate.
Interest rate should be stable to generate deposits in the banks
therefore; people have the change to save money in the bank
instead of investing anywhere else.
The result of the current study shows positive impact of the
exchange rate on the economy of Pakistan. A strong exchange

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rate leads low cost of production with cheap imports and also
helps to control inflation due to low prices of foreign goods and
services. Therefore study suggests to the policy makers to
maintain high exchange rate in order to boost up the economy
of Pakistan.

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