Crisis rate in Pakistan

1. Economic crisis due to
inflation
By: Amanullah Khan Jadoon

2. Economy And Inflation
• Economy: The state of a country in terms of
the production and consumption of the goods
and services and the supply of money.
• Inflation: It is the rise in the prices of goods
and services in an economy over a period of
time.

3. Economy Of Pakistan
• The economy of Pakistan is the 26th largest
economy in the world in terms of purchasing
power and the 42nd largest in terms of
nominal Gross Domestic Product.
• Pakistan has a semi-industrialized economy,
which mainly encompasses textiles,
chemicals,food processing ,agriculture and
other industries.

4. Types of inflation
1. Hyperinflation: is the most extreme inflation
phenomenon, with yearly price increases of
three-digits percentage points and an explosive
acceleration.
2. Extremely high inflation: could range anywhere
between 50% and 100%.
3. High inflation: is a situation of price increase of,
say, 30%-50% a year. Both kinds can be stable or
dangerously accelerate to enter in an
hyperinflation condition.

5. 4. Moderate inflation: As an indication only,
one could consider an inflation as moderate
when it ranges from 5% to 25-30%.
5. Low inflation: can be characterized from 1-2%
to 5%. Around zero there is no inflation (price
stability). Below zero, a country faces
deflation.

6. Pakistan Inflation Rate
(2014-2015)
The inflation rate in Pakistan was recorded at 2.11 percent in
April of 2015. Inflation Rate in Pakistan averaged 7.99
percent from 1957 until 2015, reaching an all time high of
37.81 percent in December of 1973 and a record low of -
10.32 percent in February of 1959. Inflation Rate in Pakistan
is reported by the Pakistan Bureau of Statistics.

7. CAUSES OF INFLATION IN
PAKISTAN
Causes of inflation are of two types
A. INCREASE IN DEMAND
1) Increase in Money Supply
The major cause of increase in the price level is an increase in money supply.
It may be due to increase in currency or credit money. Increase in the
stock of money induces people to demand more and more of goods and
services.
2) Increase in Velocity of Money
According to the Fisher’s Quantity Theory of Money, if there is an increase in
the velocity of circulation of money it also leads to inflation.
3) More Investment
Investments also play an important role in producing inflation. At the moment
of investment the economy’s stock of wealth and money expands and it
result is in inflation.

8. 4) Non-productive Expenditures
Government of Pakistan has to make a lot of non-productive
expenditures like defence etc. Such unproductive
expenditures lead to the wastage of economy’s precious
resources and also lead to inflation
5) Corruption & Black Money
Corruption and black money leads to increase in aggregate
demand, which is cause of inflation. These evils increase
aggregate demand and import volume.
6) Deficit Financing
Deficit financing is another cause of inflation. It increases the
money supply and leads to inflation.
7) Foreign Remittances
Increase in foreign remittances is increasing the money supply
in our country. Increase in money supply leads to inflation.

9. 8) Foreign Aids
Foreign aids are also a source of mobilization of resources
form rich countries to poor countries. It is also a cause of
inflation in Pakistan.
9) Consumption Trends
Due to demonstration effect people of our country want to
copy the styles of people of rich countries. In this way there
is an increase in consumption trends that leads to inflation.
10) Population Bomb
Population of Pakistan is increasing day by day. Increasing
population is demanding more and it creates inflation.

10. B. DECREASE IN SUPPLY:
11) Slow Agricultural Development
Low growth rate of agricultural sector caused in shortage of
productivity. It results in low supply and increase in price level.
12) Slow Industrial Growth
Our industrial sector is not at developed form due to use of backward
techniques of production. Its less production also creates shortage
in market and caused in inflation.
13) Increase in Wages & Salaries
Now labour is demanding more wages and salaries. Increase in wages
and salaries leads to increase in cost that increases the prices. On
the other hand due to more wages and salaries there is an increase
in income and it caused in inflation

11. 14) Increase in Prices of Imports
Increase in the prices of imports also leads to creation of inflation. If
there is an increase in the prices of oil and other imported raw
material then it will cause to reduction in supply.
15) Devaluation
The value of our currency is decreased due to devaluation. It makes
imported goods more expensive and it leads to shortage of supply.
16) Indirect Taxes
The imposition of indirect taxes is a reason for increase in prices.
Sometimes government imposes taxes on some particular
commodities. In this case producer may start to decline the
production of those goods.

12. EFFECTS OF INFLATION
Following are the EFFECTS of inflation:
1) It is a huge problem for employees, taking fixed
salaries.
2) It generates unfair distribution of income and
wealth.
3) Inflation reduces the saving of the population.
4) It is a cause of unfavorable balance of trade and
payment.
5) Inflation increases the rate of interest.

13. 6) It creates a lot of social evils.
7) It is difficult for consumers to purchases more
goods.
8) It generates very bad effects on the poor labour
force.
9) Inflation reduces the living standard and
purchasing power of people.
10) It is harmful for creditors.
11) Inflation reduces the purchasing power.

14. MEASURES TO CONTROL THE
INFLATION
Following measures are suggested to control inflation:
1) Increase in the growth rate of output
2) Government should control the supply of money
through effective monetary policy
3) Highly increasing unproductive expenditures must
be control
4) Government should check the corruption first to
eliminate the inflation
5) Control on population is also necessary to control
inflation

15. 6) Reduction in budget surplus
7) Reduction in monetary expansion
8) Effective tax system will be helpful to control the
inflation
9) Improvement in balance of payment
10) Developments of agricultural and industrial sector
will helps to control the inflation.

16. Conclusion:
Inflation is everywhere in an economy. Its rate is
high in developing countries and is low in poor
developed counties. Effective operation of
monetary and fiscal policy is essential to
control the inflation.