Pakistan inflation caused by money printing for budget: finance minister

June 12, 2008 (LBO) – Unprecedented borrowings from the central bank or ‘money printing’ to finance subsidies have caused inflation in Pakistan to go to a historic high, the country’s finance minister has said. Finance minister Naveed Qamar told Pakistan’s parliament that large subsidies not financed in the original budget had been given by the government in the past year expanding the fiscal deficit.

“As much as 551 billion rupees (up to May 2008) have been borrowed from the central bank, which is unprecedented in the country’s history,” Qamar said Wednesday.

“It is not difficult to imagine what this printing of money means. With more money and no new production, only prices are likely to increase, which is what is happening.

“We have to stop this process otherwise the inflation will be running much higher than what it is at present, and as I noted it is already highest in the country’s history.”

Inflation was now at 11 percent a year.

In many high inflation Asian countries, from Sri Lanka to Indonesia, political leaders buy popularity by doling out subsidies instead of building infrastructure, which are then financed with central bank credit causing very high inflation.

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