2. National Institute of Management,
Karachi
29th Mid-Career Management Course (MCMC)
(Monday 03rd February, 2020 to Friday, 08th May, 2020)
Current Issue Presentation
“Recent Inflation in Pakistan-Its impact on
poor people”
Asif Raza
Ex-Cadre (NAB)
Dated: 19th March, 2020
Faculty Advisor: Mr. Asif Ali Kakepota (CI)
By
2
3. Sequence of Presentation
Introduction
Types of inflation
Currency of the Topic
History of inflation from 2002 to 2019
Challenges & issues-Causes of inflation
Analysis /Impact
Comparative Analysis
Conclusion/ Findings
Recommendations
3
4. Introduction
4
Defining Inflation
Inflation is a quantitative term.
It measures the rate at which the average price level of a basket
of selected goods and / or services in an economy rises up over a
period of time.
Constant increase in prices such that a unit of currency losses it
worth and could buys less than it did in previous periods
5. Introduction
5
Defining Inflation
Inflation is defined as a sustained increase in the price or a fall in the value
of money.
An increase in the supply of money or credit than in the production of good
and services, resulting in higher prices and fall in the purchasing power of
money.
As per Keyns Inflation is an imbalance between aggregate demand and
aggregate demand.
According to C.Crowrowther, “Inflation is state in which the value of
money is falling and the prices are rising”
24
6. Currency of the Topic
Sharp rise in inflation crossing two digits
Measured by the Consumer Price Index (CPI) on YoY
basis
Rose steeply by 13.07 % in Jan 2020 as compared to
12.42 percent in Dec, 2019 and 5.84% percent in July,
2018
Very disturbing for the ordinary households, the poor
and also for the representatives of the country.
6
7. CAUSES
THAT MAY BRING ABOUT INFLATION
Increase in public spending
Deficit financing or Govt Spending
Population Growth
Hoarding
Genuine shortage
Tax reduction
Imposition of indirect taxes
7
8. FORMS OF INFLATION
Demand-Pull Inflation-
• Caused due to excessive demand due to increased private
and Govt spending etc
Cost-Push Inflation-
• Caused by drop in aggregate supply. The may be due to
increased prices of inputs or due natural disasters.
Hyper Inflation
• Price level goes on rising at very fast rate, often happens
hourly increase in price level.
8
9. FORMS OF INFLATION
Creeping Inflation-
• The price level increases very slowly over a period of time, 2%
per annum is considered a necessary condition of economic
growth.
Moderate Inflation-
• The rise in price level is neither too fast nor too slow.
Galloping Inflation
• Price level increase at two-digit or three-digit rate per annum.
Galloping inflation is also known as jumping inflation.
9
10. HISTORY OF INFLATION
FROM 2002 TO 2019
10
0
5
10
15
20
25
,2002 ,2003 ,2004 ,2005 ,2006 ,2007 ,2008 ,2009 ,2010 ,2011 ,2012 ,2013 ,2014 ,2015 ,2016 ,2017 ,2018 ,2019
Inflation
Source: www.worlddata.info
12. CHALLENGES & ISSUES-CAUSES OF
INFLATION
Money Supply and Increase in Demand
Rise in Production Cost
Depreciation in Money Value
Debt Burden (National and International)
Tax Burden
12
13. CHALLENGES & ISSUES-CAUSES OF
INFLATION
Money Supply and Increase in Demand
Rise in Production Cost
Depreciation in Money Value
Debt Burden (National and International)
Tax Burden
13
14. Impact of Inflation
Positive effect
(If between 2% To 4 %)
• Increase in production
• Increase employment
• Increase economic activities
that may cause to inventions.
• Profit of the producer also
increases when there is normal
inflation.
Negative effect
• Hoarding
• Lowers national savings
• Very bad effects on poor
labor force.
• Reduces the living standard
and purchasing poweer
• Harmful for creditors
• Fall in the export income
14
15. Analysis / Findings
• Foreign reserves belong to the whole nation – the
government and private sector while budgetary
resources belong to the Government alone.
• An important tool for monetary policy and exchange
rate determination
• In a crisis situation, it helps to stabilize the economy
without approaching IMF & WB etc.
15
16. Analysis / Findings
• Pakistan Ranks 136/190 (ease of doing business, World
Bank report 2019)
Case Study:
• In 2015, Greece was not able to do this. It then used its
reserves with the IMF to make a debt payment to the
European Central Bank. The huge sovereign debt the
Greek government incurred led to the Greek debt crisis.
16
Source: Amadeo, Kimberly. (April 18th, 2019) Foreign Exchange Reserves & How They Work, The Balance
(https://www.thebalance.com/foreign-exchange-reserves-3306258)
17. Conclusion
• Maintaining foreign currency reserves is vital to the economic
health of a nation.
• FERs in Pakistan are continuously decreasing
• It impacts our economy badly.
• FERs need to be stabilized and should be in excessive
quantity for smooth inflow and outflow of trade
• In 2018, our economy was in crisis, which the new
government is trying to stabilize it through its aforementioned
policies.
17
18. Workable Solutions
S.# Action / Proposal
Responsible
Government
organization/depart
Time
Frame
Expected
Outcome
1
Increasing Freelancing
/Entrepreneurship
Jawan Program Continuous
Inflow of Dollars
from foreign
countries
2
Providing incentives to
the Pakistanis living
abroad
State Bank Continuous
Remittances
through legal
channel
3 Ease of doing business
Finance and interior
ministry
Continuous
Attracting FDI,
growth of local
industry
4
Decreasing Fiscal deficit
through austerity
measures
Government of
Pakistan
Continuous
Reducing burden
on Foreign loans
18
19. Workable Solutions
S.# Action / Proposal
Responsible
Government
organization/depart
Time
Frame
Expected
Outcome
5
Curbing Hundiwala
system and illegal
outflow of wealth and
inflow of remittances
from Pakistan
FIA and other
specialized agencies
Continuous
Sending money
abroad and
remittances to
Pakistan through
legal channels
6
Increasing Exports and
decreasing Imports
Ministry of Finance Continuous
Reducing Current
Account Deficit
(CAD)
7
Registration of Large
manufacturing
companies to include
them into tax net
FBR Continuous
Increase of
taxation network
8 Promoting Tourism Tourism Department Continuous Inflow of Dollars
19