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  1. 1. Stagflation and In-effectiveness of Monetary Policy
  2. 2. Presented By: Muhammad Zeeshan Azam (123220) Fazeel Ahmad (123221) Semester : Fall-2013
  3. 3. Table of Contents  Introduction to Stagflation  Periods of Stagflation in Pakistan  Current Situation  Causes of Stagflation  In-effectiveness of Monetary Policy  Suggestions and Conclusion
  4. 4. Introduction to Stagflation Combination of two major economic conditions  Stagnation :The economic growth rate slows down, and unemployment remains steadily high.  Inflation: The increase in overall price level  Stagflation: A situation where an inflation rate is high, the economic growth rate slows down, and unemployment remains steadily high
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  6. 6. The Periods of Stagflation Pakistan has faced three periods of stagflation  First period of stagflation  Second period of stagflation  Third period of Stagflation
  7. 7. The first period of stagflation  Began in 1970s  After the disastrous succession of East-Pakistan  It was subsequently ended by the military government of Zia-ul-Haq in 1980s
  8. 8. Second period of stagflation  Began in 1990s  Benazir Bhutto and Navaz Sharif attempted to tackle the stagflation  Subsequently ended by Shaukat Aziz in 2000s. Third period of Stagflation  After the 2008 elections and the wide spread of militancy in the Western Pakistan, which would later follow the crisis
  9. 9. Current Situation  Economic cancer  Crippling energy crisis, terrorism, financial corruption and economic mismanagement by the last government  Increase in sales tax rate from 16% to 17% (June 2013)  Rupee depreciation  In increase in prices of imported consumer and non-consumer items  In October 2013, total food inflation was at 9.8%
  10. 10. Causes of Stagflation in Pakistan:  Reduced productive capacity of an economy  Inappropriate macroeconomic policies (fiscal and monetary)  Lower Tax/GDP ratio leading to higher fiscal deficit  Higher government borrowing from State Bank  Unemployment is another factor which causes stagflation  Social crimes are also be seen in the country
  11. 11. In-Effectiveness of Monetary Policy  The monetary policy is conducted by the central bank  State Bank of Pakistan is fully capable of implementing its own independent monetary policy Two broad objectives  Secure monetary stability  Find fuller utilization of country’s productive resources
  12. 12. Reasons for In-effectiveness  Lack of coordination between Fiscal and Monetary Authorities  SBP failed to control money supply  Failed to control rate of inflation within the set target level.
  13. 13. Suggestions and Conclusion  Government has to take some positive and tangible measures to attract Foreign Direct Investment (FDI)  Stop capital flight from the country  State Bank of Pakistan should reduce the inflationary pressures  Enforcing an effective and independent monetary policy in the country
  14. 14. Continued…  Enhanced central bank independence will improve monetary policymaking  Government should focus on revenue side to improve the tax to GDP ratio  It is suggested by IMF to generate 1.5million employment per year