This document discusses stagflation in Pakistan and the ineffectiveness of monetary policy. It covers three periods of stagflation in Pakistan from the 1970s to today. The current situation includes high inflation, energy crisis, and economic mismanagement. Causes of stagflation include reduced productive capacity and inappropriate fiscal and monetary policies. Monetary policy conducted by the State Bank of Pakistan has been ineffective at controlling money supply and inflation due to a lack of coordination with fiscal authorities. Suggestions include attracting FDI, reducing inflation pressures, enforcing effective monetary policy, and improving tax collection.
4. Table of Contents
Introduction to Stagflation
Periods of Stagflation in Pakistan
Current Situation
Causes of Stagflation
In-effectiveness of Monetary Policy
Suggestions and Conclusion
5. 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
7. The Periods of Stagflation
Pakistan has faced three periods of stagflation
First period of stagflation
Second period of stagflation
Third period of Stagflation
8. 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
9. 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
10. 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%
11. 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
12. 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
13. 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.
14. 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
15. 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