The government on Friday approved an increase of up to 20 per cent in medicine retail prices, with the rise for essential drugs capped at a maximum of 14pc as decades-high inflation grips the country.

The decision, taken in the cabinet’s Economic Coordination Committee (ECC), was due for months to meet the demands of drug importers and manufacturers, whose associations were demanding an across-the-board 39pc rise, warning that the industry could otherwise collapse.

The finance ministry said medicine prices could be reviewed again after three months if the rupee appreciated, adding that “no increase under this category” would be granted in the next financial year.

The Pakistan Pharmaceutical Manufacturing Association criticised the increase, which it said was way lower than it had expected.

Inflation clocked in at 35pc in March, fuelled by a depreciating currency, a rollback in subsidies and the imposition of higher tariffs to secure a bailout package of $1.1 billion from the International Monetary Fund.

Food inflation has risen to more than 47pc and even the wealthier professional class is making lifestyle changes to deal with rising prices.

The simmering price dispute between the pharmaceutical industry and the health ministry had resulted in an acute shortage of critical medicines, forcing patients to rely on smuggled and potentially counterfeit drugs at increased costs.

The government’s rejection of the demand to increase drug prices had propelled pharmaceutical companies to either stop or go into a limited-scale production of scores of essential and non-essential medicines.