Inflation adds to Pakistan's troubles

The Pakistani government, elected in February with great hopes of restoring stability, is not just struggling to deal with a Taliban insurgency, a judicial crisis, and an internally fractured coalition.

It is also managing one of the worst economic periods in the country in the past decade. And as millions of Pakistanis from a cross-section of economic classes feel the heat from a dipping economy, some are beginning to blame the new government.

"The economic situation is deepening the political crisis," says Rasul Baksh Rais, professor of political science at the Lahore University of Management Sciences. "If the government isn't able to address this soon," he says, people could start spilling out onto the streets. And a weak government, he says, might not ready for all this so soon after coming into power.

On Tuesday, transport operators pulled thousands of buses and trucks off the streets of Karachi, Pakistan's biggest city, to protest sharp rises in fuel prices. Gasoline and diesel prices have increased 60 percent since February.

Flour mills across the country also went on strike earlier this month to protest price caps introduced by the government.

Last week small investors rioted and broke windows at the Karachi Stock Exchange, frustrated by the steady decline of a stock market that in recent years was one of the most profitable indexes in the world. It had dropped by about 36 percent since hitting a record high in April.

Assigning blame

Last Saturday, Prime Minister Yousuf Raza Gilani made his first television address after taking office in March and spoke about the multitude of challenges his government faces. But he deflected blame for the economic trend on the previous government's bad policy and the rise of fuel and food prices worldwide.

The coalition government led by Pakistan People's Party (PPP) inherited a chronic shortage of hydroelectric power and wheat, signs for which had started surfacing in the final days of the previous government, made up of Pres. Pervez Musharraf's loyalists.

Soon after the elections, though, the coalition began unraveling, leaving the PPP to grapple with the economy and the growing militancy alone.

Now, as the militancy has risen, the inflation rate has also hit a three-decade high, and prices of staples have gone up almost 30 percent.

This month, the government unveiled its national budget document, which provides the government's blueprint for the coming fiscal year. Keeping with assassinated party leader Benazir Bhutto's populist campaign platform of "Five E's" – employment, education, energy, environment, equality – the government introduced a "Benazir Card" scheme, which provides financial relief to poor families.

But the government also began peeling away subsidies for fuel, food, and utilities to keep the government debt in check in the face of rocketing international fuel prices.

1 | 2

Next