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Essay on Inflation in Pakistan for Students

by Pakiology | Mar 22, 2024 | Essay | 0 comments

In this essay on inflation in Pakistan, we will look at the causes, effects, and solutions to this issue that has been affecting the country for decades. The term ‘inflation’ refers to a sustained rise in the prices of goods and services in an economy. In Pakistan, inflation has been a major concern since the late 1990s, with the Consumer Price Index (CPI) reaching a peak in 2023. We will explore the various factors that have contributed to inflation in Pakistan, its economic effects, and what can be done to address the issue.

Page Contents

Essay on Inflation Outlines

Causes of inflation in pakistan, effects of inflation, solution to control inflation.

• Introduction

Inflation in Pakistan is caused by several factors, which can be divided into two main categories: domestic and external. The main domestic causes of inflation are an increase in money supply, an increase in government spending, an increase in indirect taxes, and a decrease in economic growth.

The most significant contributor to inflation in Pakistan is an increase in the money supply. When there is too much money chasing after too few goods, prices rise, creating a situation known as demand-pull inflation. An increase in the money supply can be caused by the central bank printing more money or by the government borrowing more money from the public.

In addition, higher government spending can lead to inflation. This occurs when the government prints more money to finance its expenditure or borrows from the public and transfers the cost of this additional spending to businesses and consumers. This leads to higher prices for goods and services. Indirect taxes are another major factor that contributes to inflation in Pakistan. When indirect taxes are increased, prices of goods and services also increase, leading to an overall rise in prices.

Finally, low economic growth can also cause inflation in Pakistan. A weak economy reduces people’s purchasing power, forcing them to buy less, which reduces demand and leads to lower prices. However, when economic growth stalls, businesses are unable to sell their products at the same price as before, leading to a rise in prices.

Overall, inflation in Pakistan is caused by a combination of domestic and external factors. These include an increase in money supply, higher government spending, increases in indirect taxes, and a decrease in economic growth.

The effects of inflation on the economy can be both positive and negative. Inflation erodes the purchasing power of money, meaning that each unit of currency is worth less than it was before. This means that, as the cost of living increases, people can purchase fewer goods and services for the same amount of money. As a result, their standard of living decreases.

Inflation also reduces the real return on investments and savings, which can have a detrimental effect on economic growth. When inflation is high, people prefer to save their money rather than invest in a business or other activities. This reduces the availability of capital and results in slower economic growth.

In addition to decreasing standards of living, inflation can lead to unemployment if companies are not able to increase wages at the same rate as prices rise. This can lead to an increase in poverty, as people struggle to afford necessities. Furthermore, when prices rise faster than wages, it puts pressure on government budgets and can increase public debt.

Inflation can also cause the value of the local currency to depreciate against foreign currencies. This has a direct impact on the cost of imports and makes domestic goods less competitive in international markets. It can also have an indirect impact on exports, as it reduces the competitiveness of local producers in foreign markets.

Inflation is a serious issue in Pakistan, and it needs to be addressed to improve the country’s economic conditions. The following are some of the measures that can be taken to control inflation in Pakistan:

1. Fiscal policy: A strong fiscal policy is necessary for controlling inflation. The government should increase its revenue by implementing taxes on the wealthy and reducing public spending. This will help reduce budget deficits, which will result in lower inflation.

2. Monetary policy: The State Bank of Pakistan should adopt a tighter monetary policy to control inflation. It should raise interest rates so that investors have an incentive to save rather than spend, thus curbing demand-pull inflation.

3. Supply-side measures: There should be an increase in the production of essential commodities and products to meet the demand of consumers. This will help reduce prices and inflation in the long run.

4. Subsidies: The government should provide subsidies to those who are suffering due to the high prices of essential items. This will help them cope with the rising cost of living and ensure that they have access to essential goods and services.

5. Stabilizing exchange rate: A stable exchange rate between foreign currencies and the rupee is necessary for controlling inflation. The State Bank of Pakistan should strive to keep the rupee’s value stable by using currency swaps and other methods.

These measures can go a long way in controlling inflation in Pakistan. By taking these measures, the government can help improve the country’s economic condition and create an environment conducive to investment and growth.

What is inflation in simple words?

Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.

What are the 4 main causes of inflation?

The 4 main causes of inflation are: Demand-pull inflation: when there is an increase in demand for goods and services that outstrip the economy’s ability to produce them. Cost-push inflation: when the cost of production increases, causing companies to raise prices to maintain their profit margins. Built-in inflation: when businesses expect prices to rise and build that expectation into their prices, causing a self-fulfilling cycle of inflation. Imported inflation: when the cost of imported goods increases, leading to higher prices for consumers.

What are the 5 main causes of inflation?

The 4 main causes of inflation are: 1. Demand-pull inflation 2. Cost-push inflation 3. Built-in inflation 4. Imported inflation 5. Monetary inflation

What is inflation introduction?

Inflation is a phenomenon that has been observed throughout history. It refers to the sustained increase in the general price level of goods and services in an economy over a period of time.

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Energy Crisis In Pakistan Essay In Urdu

Energy Crises are demolishing the backbone of our country. It is any bottleneck which directly or indirectly linked with energy resources to economy of a country. Pakistan is passing through the same circumstances that is why I made this topic energy crisis in Pakistan essay in Urdu. Energy has become the core of prosperity of a country with which a poor country can stable her without gaining aid from others. Energy Crisis has inverse relation with GDP of a country. GDP (Gross Domestic Product) is the primary wheel on which a body of a country stands. It tells how many product and services are being produced in a boundary line with in a specific time period and the value of all the products and services in dollars. Pakistan’s is not well structured and poorly managed. Several energy Crisis have been haunting the Pakistan since last many years. There are many reasons behind this rise in energy crises such as growing gap between demand and supply, energy insecurity and bulky load shading. Its roots hails from last few years when a sudden industrial revolution was occurred and sudden rise in energy demand became tension for energy suppliers. Due to lack of efficient management, today it is one of the biggest headaches for country.

Energy crisis are not a sudden disaster in Pakistan but cultivated in the result of negligence and poor management. Have we ever thought? How we moved from energy surplus (2001) to lack of energy (2006). Our government is not considering it a serious issue as we haven’t worked on resources through which we can produce energy. One of the cheapest ways to produce energy is hydro power stations. Unfortunately we have only 34 hydro power plants and producing energy through thermal power station, which are not only costly way but also destroying the natural resources wildly. It is also not meeting the demand of nation. Similarly there are bunch of reasons which have became the reason behind this terrified downfall and I have wrote these causes of energy crisis in Pakistan essay in Urdu.

Energy Crises Causes:

• Rise in Energy Demand
• Non-Utilization of Other energy sources
• Lack of Hydro Power Plants
• Lack of Planning

Rise in Energy Demand:

From last two or three decade a sudden industrial development took place in Pakistan. A large number of industries set in every year and these industries more energy to consume to produce product and service for the country in result to increase GDP of country. This sudden rise in energy demand has created the gap between demand and supply flow. Our government is not producing enough energy to keep balance in demand and supply of energy which led to energy crises in Pakistan. This disturbance in demand and supply is also the reason of price increase.

Non-Utilization of Other Energy Sources:

Pakistan is a developed country where number of natural sources is produced through which we can produce energy. But due to poor management we have not resources to use these sources. Our whole energy structure revolves around thermal plants and has few hydropower plants and few solar plants to produce energy. Energy can also be produced through other ways, like we can make energy through garbage, by creating more dams and by improving solar system.  Government should have to find many other ways through which we can produce energy and can save natural resources like cool, gas, patrol etc.

Lack of Hydro Power Plants:

Energy which can be produce through hydropower plants are cheaper than any other type of energy production not only in short run but also in long run too. There are only 34 hydro plants which are not enough to produce energy to fulfill the demand of energy. According to the Indus water treaty there are three big rivers were allotted to Pakistan. We can produce energy by making dams on these rivers and the water in these dams is enough to reduce energy cries from Pakistan. Due to personal interest and lack of awareness we are not considering this source of energy.

Lack of Planning:

Pakistan is surrounded with natural resources through which we can produce energy. Due to negligence and lack of planning we are not using these resources in a right way. Moreover we are producing energy and targeting those resources which prove beneficial in short term. We have to do proper planning and instruct energy producer to produce energy through those sources by keeping long term benefits in mind. Proper planning can help to produce more output by using little input.

Energy crisis have became the disaster which are disturbing social, agricultural, industrial and economical life. There are a number of factors which are directly and indirectly causing the energy crisis in Pakistan. These energy crisis are due to poor management, lack of planning and non utilization of other alternates. It can be control through awareness, little efforts and by shaping the management system of Pakistan. If energy can be enhanced, the country will become prosper.

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Economy of Pakistan – Challenges and Prospects (CSS Essay)

Table of Contents

1. Introduction

Pakistan today, confronts multiple challenges which vary in intensity. Some of the challenges appear to be multi-dimensional and complex in nature which certainly will take many years to overcome. Interestingly, a few of the problems and challenges have been self-inflicted by the powerhouses that have caused a widespread socio-economic damage to this country. This way, the poor economy of Pakistan remains the chieftain among the challenges since the country’s birth. The weak and fragile structure and the picture of the economy of Pakistan are what inevitably produce other inter-linked social challenges, such as poverty and corruption.

One gets to know that ever-rising inflation, increasing unemployment, shrinking GDP and diminishing exports level are the major obstacles which restrict the ability of Pakistan to have a well-developed and flourishing economy. According to the Economic Survey of Pakistan 2016-17, the inflation rate in Pakistan grew to 5.02% from 4.78%; GDP growth rate went up to 4.71% from 4.04%; unemployment rate declined to 5.9% from 6%; interest rate is 5.75% which remains the same. Although the economic indicators are, by the large, not appreciable but a slight increase in GDP seems to be the positive development.

2. An Overview.

In 1947, Pakistan had 30 million people with per capita income of 100$. Agriculture accounted for almost 50% of economic output with hardly any manufacturing, as all industries were located in India. Therefore, it was unable to feed 30 million people and was dependent on PL-480 imports from the USA. From thereon, Pakistan has come a long way. Today with 170 million people, our per capita income in 2008 was 1000$ which was ten times more. Pakistan is the third largest exporter of rice in the world and producing enough food grains to feed its people. 3 million tons of rice is exported every year by Pakistan which is surplus to our requirements. Pakistan is also one of the five major textile producing countries in the world. So if we measure in relation to where we were vis-à-vis structure of economy, agriculture has come down from 50% to 20%. Therefore, out of total national income, agriculture’s contribution is just 20%, but instead of being deficient in food production, we are actually surplus and that is what productivity means i.e. by using the same land you produce more from the same inputs, that is how economic growth takes place. Agriculture is not only crops, within agriculture there has been a significant change. Livestock, dairy, mutton, beef, poultry and similar other products is 50% of agriculture output in Pakistan. Pakistan also produces third largest quantity of milk in the world. So within agriculture sector, there is a change i.e. major crops are only 36% of agriculture value added and 14% are minor crops, fisheries, orchards, fruits and vegetables. Thus, we are moving in a direction where the same land and same resources are being used more efficiently in order to produce more. As a contrast, agriculture is only 2.5% in the US having a population of 300 million, out of which they not only feed the entire population, but also export to the rest of the world. Therefore, it is important to understand that when it is said that agriculture is producing/contributing more, it is the productivity of agriculture rather than the share of agriculture in GDP. Manufacturing and industry now account for 25% of the income; when we recall there was not even a single industry worth its name at the time of partition. So if we look where we were and where we are, I think the justification for Pakistan in terms of betterment of economic conditions of Muslims in this part is very strong. But where we have failed is that we have not lived up to our potential. In 1969, Pakistan exports of manufactured goods were higher than the combined exports of Indonesia, Malaysia, Philippines and Thailand. In 1960’s Korea emulated Pakistan in its five years planning process. The tragedy is that even a country such as Vietnam which was completely devastated by the war has now overtaken Pakistan. Ten years ago, India which was way behind Pakistan (till 1990’s) is now way ahead. As an economist and student of globalization, the biggest challenge is: how can we organize ourselves to reach that position where at least we can be running not at the nine second a mile but at least ten second a mile race which is going on in the global economy.

3. Challenges to Pakistan’s Economy

(a) we consume more and save less..

People in Pakistan save only 14 pc of their monthly salary generally while worldwide, the average standard of savings is 27 pc. This is the contrast as to why we are in serious difficulty because as a nation this is a problem which we have to recognize. We have to at least double on savings rate otherwise we will remain dependent on foreign sources.

In Pakistan educated people are also more likely to keep their savings at home instead of in the banks.

This was disclosed by Standard Chartered Bank’s study ‘Emerging Affluent Consumers in Asia – The Race to Save’. This survey was conducted in 8 countries including China, Hong Kong, Singapore, India, Taiwan, Korea, Kenya and Pakistan. The survey further said that emerging affluent consumers in Asia could boost their savings by an average of 42 per cent if they move from a basic savings approach to a low-risk wealth management strategy.

(b) We Import More and Export Less.

Pakistan’s trade deficit has hit a record level of 30 billion US dollars in the first 11 months of 2016-17, showing a jump of 42 per cent as compared to the same period in the previous financial year. Exports have declined by three per cent to 18.5 billion US dollars while imports have gone up by 21 per cent to 48.5 billion US dollars. As a nation we prefer to use even the basic commodities of foreign countries rather than locally manufactured goods. Unless we do not change this attitude of preferring the imported goods we have to keep on relying on outsiders to fill in this gap b/w our imports and exports. Relying on outsiders’ means that there are cycles, ups, and downs i.e. when things are good, one gets financing, and when things are bad one starves for financing. No nation which strives to preserve its honour must go through this particular route. The lower is this gap between our export earnings and expenditure on imports – and that can be achieved only by expending our exports; our reliance on external sources would be reduced.

(c) Government spends more than it earns as Revenues.

Fiscal deficit is the difference between the revenues which are collected in a year and the total expenditure incurred by the Government. Pakistan’s government takes away 20% of national income as its own. 80% is left in the private sector and 20% in the hands of the government is spent on defence, debt servicing, development on education, health, general administration etc. Country’s budget deficit, a gap between expenditures and revenues, was recorded at 5.8 percent of the GDP during FY2017 as against the target of 3.8 percent of the GDP. In expenditures, the government had spent Rs888.1 billion on the country’s defence. Similarly, a massive amount of Rs1348.4 billion was spent on paying the country’s interest on domestic as well as foreign borrowings. The government had earmarked Rs.1,360 billion in annual budget for paying interest on domestic as well as foreign loans during fiscal year that started from July 2016 and ended in June 2017. The revenue generated is only 15% of the GDP at best, and in the worst days it is 12 to 13%. Out of the every rupee of income received by a Pakistani, on average, tax paid is only 9 paisas and 91 paisas remain with the individual. In 2007-2008, Pakistan’s fiscal deficit was more than 7% which means its income or revenues were only 13% of GDP whereas, expenditures were 20%. Therefore, fiscal deficits have to be financed from somewhere, so how do you finance them; you either go again begging the external donors, or to the State bank of Pakistan. The financing provided by the State bank of Pakistan is dangerous because it creates high inflation in the economy, which is injurious to the middle class, those earning fixed wages and salaries, and the poor. Therefore, there is an uproar in the country if the inflation rate goes up. Continuing large fiscal deficits year after year may plunge the country into debt trap again.

(d) Our Share in the World Trade is shrinking.

In 1990, Pakistan’s share was 0.2% of the world trade. After 20 years it has come down to 0.12% in a very buoyant world economy. World trade has been growing faster as compared to the world output. India in the same period had doubled its share from 0.7% to 1.4%, while Pakistan is going the other way and that is the reason why exports/imports imbalance is increasing. We are not taking advantage of the opportunities which a buoyant world economy is providing. Pakistan is stuck with only a few commodities – textiles, leather, rice, sports, goods and the surgical goods. We have not entered the markets for more dynamic products. All our exports are to a few markets – the USA, EU and the Middle East. So this narrow export base and very limited geographical spread are not allowing us to expand our share. Unless we improve the quality of our products, go out and do the marketing abroad, invest in research and development, the prospects do not look promising. That is why we are lagging behind other countries which from way back are over taking Pakistan.

(e) We Badly Lag in Social Indicators.

One of the most glaring weaknesses is that a country like Pakistan that should have had best indicators in literacy, infant mortality, fertility rates, in access to water supply, in primary enrolment ratios has social indicators which are more comparable to Africa rather than to the countries of similar per capita income. Even Tajikistan, which is a very poor country, has better literacy rate and primary enrolment ratios than Pakistan. What does it means? It means that if we had literacy rate of 100% instead of 55%, then in 2009-2010 our per capita income would have been 2000$ rather than 1000$. Instead of 30 million middle class in Pakistan we would have 60-70 million middle class people; we would have poverty reduced to 15-20%. We have committed to achieve the millennium development goals by 2015 i.e. we will be able to reach 80-85% literacy rate, but it is doubtful that this will happen. Why do we have regional inequalities? Why Baluchistan is lagging behind other provinces? It is because of literacy rates and primary enrolment ratios. There is a direct correlation between regional inequities and backwardness with the level of education.

(f) We Face Energy and Water Shortages.

Another challenge we face today is energy and water shortages, and that is not because we are not generating enough electricity or we are not having enough water. With the losses of KESC from the point it has generated to the point they realize the billing is 45%, so 55% people are paying for those who are stealing the electricity. Government of Pakistan out of its own limited resources is paying 200 billion rupees every year as subsidies for electricity. Our industry is at a disadvantage that they get the orders from foreign countries but they cannot execute the orders because there are electricity outages. In addition to economic losses it also creates inconvenience for pursuing normal life. We have silting of our dams, but no additional dams have been constructed since Tarbela in 1974. We have water course losses of about 20-25%. Even after these losses, the water is inequitably distributed. The influential land lords are able to take greater share of water from the canals as compared to poor farmers. Therefore, the productivity of poor farmer is only one ton per acre as compared to 3 tons by large holders. If we provide the water equitably to the small farmer, he would also be able to increase the productivity from one to at least two tons resulting into additional income, increase in exports of food grains, cotton and fruits and vegetables which will add to export earnings of Pakistan. With the climate change taking place with all the glaciers in Himalayas which are going to melt, we are going to have difficulties in future due to global warming.

(g) Cost of Doing Business is High.

Pakistan has slipped three places on the Word Bank’s Ease of Doing Business Index 2017 and is now ranked a lowly 147th among 190 economies, denting the government’s pro-business image ahead of next general elections. The index is mostly used as a guide by foreign investors to learn more about a country, aiding decisions on pouring in money in the economy. Pakistan, however, slipped from its last year’s rating despite the introduction of some reforms in areas of starting a business and making international trade relatively easier. If one government department is to be blamed for the overall poor performance, it is the Ministry of Finance, as the country’s ranking nosedived on the indicators of paying taxes and getting credit. Pakistan lost 16 positions on the indicator of paying taxes, standing at 172, according to the 2018 report. Last year, Pakistan’s ranking was 156. One of the reasons behind the dismal performance was the increase in overall tax rates that surged to 33.8% of total profits. Lack of coordination among various government agencies, innumerable laws and regulations that are antiquated and outdated have proved to be serious impediments. Labour laws, inspections by multiple agencies, the delays in the court system, infringement of intellectual property rights and evasion of taxes by competing firms in the informal sector have rendered some of the well-established firms unprofitable, or the feasibility of starting near ventures questionable.

(h) Crisis of Governance and Implementation Weaknesses.

If we glance on policy documents of various governments on education, agriculture, health, trade policy etc, and look at the same policy forty years ago and the problems, there is hardly any significant record of implementation of those policies or plans over this period. We produce five years plans and all kinds of medium term frameworks, but it is the poor governance and implementation that are the weak links in getting things done. Unless we strengthen civil services and bring about a merit based system of recruitment, promotion, performance evaluation, compensation, disciplinary action, etc, we will not be able to see any difference in the quality of governance. Orders are given by the higher ups but they are not carried out; summaries are approved, but they remain buried in the files and therefore; whether it is education, health, water supply, revenue or law and order, you can pin down the problem to the governance issues. Unless we fix the governance issue, the economy is not going to take off at the speed which is required.

(i) Uncertainty and Unpredictability due to Lack of Continuity.

Every government whether military or civilian starts with a clean slate, as if nothing happened before them and nothing will happen after them. This is not the way the real world works. You take the projects and programmes which were initiated by the previous governments, evaluate them as to what the strengths and weaknesses were, fix those weaknesses and carry them forward. It will take only few years to bring these inherited projects to completion and the country will benefit from new motor ways, new ports, highways, educational institutions etc. But the blame game of successive governments results into abrupt termination of all such projects and programs. When these are resumed the cost has escalated three times and it takes several additional years to complete them. In the meanwhile the people of Pakistan suffer because of this lack of continuity. When faced with such unpredictability about the future, the investors are pondering whether they should invest in this country as they are uncertain whether the new government when comes in would stop or alter what the previous government was doing, or adhere to the commitments made to them. Take the example of Higher Education Commission, which was sending 1700 students for PhDs abroad but the new government comes in and suspends the funding of those programmes. This solved down the process of faculty development for our universities at a time when we should have been sending twice as many scholars.

(j) Political Stability, Law and Order/Security.

The overall arching theme is that for a robust economy we should have political stability, law and order and security. The Armed Forces of Pakistan deserve gratitude for what they have done in Malakand Division to bring about stability as far as the law and order situation is concerned. The sooner the country is gotten rid of this image of political instability, poor law and order situation and insecurity, whereby investors from all over the world hesitate in coming to Pakistan and invest, we will not be able to make any progress in this country. In 2007, Pakistan was one of the most favorite countries among the international investor community. A thirty year piece of paper was floated, which was a bond for Pakistan to be paid in 2037 and Pakistan got four times over subscription at a price which was only 300 basis points above the US treasury. Very few countries can claim to have that kind of credibility with international fund managers. However, in two years’ time we have missed that boat. Therefore, it is imperative that we resume the journey which has been interrupted by nurturing a stable, secure and peaceful political environment.

4. Prospects/Solutions to Improve Economy

How can we overcome these challenges and problems and improve our economy? A lot has been written and talked about, but I will focus on only a few action points.

(a) Change in National Psyche and Mindset.

We as a nation are too much negative oriented and too much cynical where we find everything wrong in this country. Unless we change our mindset and unless everybody who is doing what he is supposed to do, carries out his or her task with sincerity and honesty, we are not going to go anywhere. We should not expect any Messiah to come and fix our problems we have to do it ourselves individually and collectively. There are no short cuts available. Media is muddying the water by their sensational stories and inviting so called experts who contribute in projecting negative thinking and negative national psyche. Unless we have a positive “can do” mentality, it will be difficult to progress. Unless each one of us changes our mindset rather than blame the government and the system, we are not going to go anywhere in this race for global economic survival. This is easier said than done. But I expect our younger generation to be more responsive and responsible.

(b) Building up of Human Capital.

There is no substitute to building up human capital. Private sector, public sector, NGOs, local communities, philanthropists etc, all here to put their hands on deck and participate in making sure that every child goes to school. Every high school graduate has some technical and vocational skill or goes for higher education. Unless we build up human capital, we are just going to be left behind because the world economy is going to be a knowledge based economy. It is not an economy where you memorize material or reproduce that in the exam and forget about it – that is no longer the case. One has to acquire the knowledge and use it in order to apply to problem solving. This is a new paradigm where human capital is as important as machinery and equipment. Pakistan lags behind other countries in the institutions, infrastructure and incentives for human capital formation. We have no choice but to accelerate the pace to catch up with others.

(c) Use of Technology.

The technology is spreading like a wild fire. How many people five years ago could have thought that even in a small towns and villages of Pakistan, one would access to mobile telephones. 95 million Pakistanis have mobile phones today. You can use this technology in order to provide those banking services, information on climate/weather, agriculture extension, health, education etc. It is a powerful tool which can leapfrog a lot of time which we have wasted. Using technology particularly the information/communication technology for the betterment of social and economic problems of Pakistan is something which needs to be done but it cannot be done the way we have compartmentalized this into different ministries. A more holistic and comprehensive approach that deploys technology for poverty reduction has to be put in place.

(d) Young Labour Force.

Pakistan is one of the few countries which has a young labour force which can be harnessed for its own and global economy. Pakistan’s youth cohort makes up over 60 per cent of the population , providing Pakistan an opportunity to leverage their strategic position in order to enhance the country’s economic growth Japan, Europe, USA and after 2050 China are going to have aging population where the ratio of old to young people is going to increase. India and Pakistan are two countries where the ratio of younger people to the older ones is going to increase. If we tool these young men and women properly, we increase the female labour force participation, give them skills and knowledge, they can become the labour force for the rest of the world. This will give a big boost to Pakistan’s own economy. In 2001, worker remittances were less than a billion dollars; today we have almost 7-8 billion dollars. Now this can be multiplied by three or four times if we have educated labour force i.e. skilled labour force going for overseas employment. This is also a way to create employment opportunities because if you have large number of younger people coming to labour force and you don’t have job opportunities for them you can have social upheaval. Therefore, it is imperative to create employment opportunities for them and one of the avenues is to train them in the kind of the skills which are needed not only by the national economy but also by the international economy.

(e) Governance, Devolution and Decentralization.

As the population is increasing, one cannot govern Pakistan sitting in Islamabad, Karachi, Lahore, Peshawar or Quetta. One has to devolve powers, decentralize and delegate authority, provide resources to the local/district governments so that they can take decisions at their own. Those decisions would be very much in accordance with the requirements and the needs of those communities. Sitting in Islamabad one cannot visualize what is needed in Chaghi or Loralai, but the people in Loralai and Chaghi know exactly whether they need water, fertilizers or fruit processing industry. Let us devolve powers to the people at the grassroots level and there would be much better allocation and utilization of resources. There must, however, be accountability of the local governments by the provincial governments and of provincial governments by the federal government but not interference or usurpation of powers. If we do that, then a lot more can happen with same amount of resources which are being wasted today, and the economic growth rate can be raised from 6-7 percent average to 8-9 percent annually.

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About the author

Shahzad Faisal Malik is the administrator of CSSTimes.pk and is responsible for managing the content, design, and overall direction of the blog. He has a strong background in Competitive Exams and is passionate and sharing information with others. Shahzad Faisal Malik has worked as a Graphic Designer/Content Creator at CSSTimes in the past. In his free time, Shahzad Faisal Malik enjoys watching Cricket, writing blogs for different websites and is always on the lookout for new and interesting content to share with the readers of this website. As the website administrator, Shahzad Faisal Malik is dedicated to providing high-quality content and fostering a welcoming and engaging community for readers. He looks forward to connecting with readers and hearing their thoughts and feedback on the website.

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Essay On Pakistan's Economy

WHAT DOES ‘ECONOMY’ MEAN? Economy is the large set of inter-related production and consumption activities that help in determining how scarce resources are allocated. This is also known as an economic system. PAKISTAN’S ECONOMY Agriculture is the main sector of Pakistan's economy in which more than 40% of the population is employed. Cotton, wheat, rice, sugarcane, fruits, vegetables, and tobacco are the chief crops, and cattle, sheep, and poultry are raised. There is also a fishing industry which is main source of revenue. Most of Pakistan's agricultural output comes from the Indus basin. The country is now self-sufficient in food, as vast irrigation schemes have extended farming into arid areas, and fertilizers and new varieties of crops …show more content…

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More about Essay On Pakistan's Economy

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Sample Essay: The key characteristics of the economy of Pakistan and perspectives for its long-term growth

1. dynamics of key macroeconomic indicators.

Pakistan is a country in South Asia with a population of 208 million people, which is the fifth largest population in the world (PBS, 2017). Pakistani economy is semi-industrialised with a well-developed agricultural sector and an increasing share of the services sector (Iqbal, 2016). It is one of the fastest growing economies in the world driven by the rapidly growing middle class (Kaplan, 2012; Alam, 2015).

The rates of real economic growth during the last four decades have been around 5%. Along with that, it is necessary to underline a high average inflation rate which is shown in Figure 1.

Figure 1. Real GDP Growth and Inflation in Pakistan

Source: IMF (2019)

One of the main sources of inflation is the rigid structure of taxes, with 39% being direct taxes and 61% being indirect ones. The disadvantage of such high indirect taxes is that producers reimburse these costs by adding them to the end price of their products (Khan, 2019).

As for other key macroeconomic indicators, they are presented in Figure 2.

Figure 2. Pakistan Key Macroeconomic Indicators

* Financial year (FY) 2019 lasted from July 2018 to June 2019.

Source: COFACE (2019)

Figure 2 evidences that a current account balance has been increasing in the previous three years because of the increasing trade deficit, but this growth decelerated in 2019 due to devaluation of the rupee. This is because of low exports entailed by tough competition in the textile production, the main item of the Pakistani exports. Along with that, remittances from expatriates at the level of 7% of GDP partially mitigated the deficit. As for public debt, it increased by almost 10%, from 67.6% in 2016 to 73.0% of GDP in 2019 and it is expected to drive up the cost of borrowing for the government (COFACE, 2019).

Domestic debt increased by five times and external debt by 1.4 times in between 2009 and 2018. This makes the government spend almost 30% of the overall budget on servicing the debt which exaggerates the budget deficit (Khan, 2019).

Along with that, a cumulative depreciation of the exchange rate was at the level of 25.5%, the development budget reduced whereas energy prices increased. This entailed the deceleration of private consumption growth from 6.8% in FY18 to 4.1% in FY19 and a decline in investment by 8.9%. The industrial sphere growth decelerated from 4.9% in FY 2018 to 1.4% in FY19 while the services sphere grew by 4.7% in FY 2019 which is 1.5% lower than in FY 2018. Unfavourable weather conditions have undermined productivity of the agricultural industry and led to the growth of only 0.8%, which was significantly lower than the targeted growth of 3.8% (World Bank, 2019).

2. Strengths and Weaknesses of the Pakistani Economy

The perspectives of the Pakistani economy are vague although the potential drivers of growth are present. First of all, the main source of growth is the population growing at a rate of 2% annually, which expands the internal market. This also contributes to the availability of labour force (Mirxa et al., 2019). However, over 40% of workers are employed in agriculture which has at least two detrimental consequences. First, this labour force remains unskilled and second, agriculture substantially depends on weather and commodity world prices. Besides, health, agricultural and educational deficiencies are present. This makes the contribution of agriculture in the Pakistani economy quite low.

Second, there are two factors that may accelerate growth in the nearest future. The first one is that Pakistan is an important centre of Islamic finance which provides significant capital flows while the Pakistan stock exchange is among the fastest-growing stock markets in the world (Masood, 2018). Another factor is high amounts of transfers from expatriate workers which increase solvency of the country population. On the negative side, the Pakistani economy can be characterised by low diversification and dependence on external energy sources (Baz et al., 2019). Moreover, the level of regional development is very different, with Karachi being the industrial and financial capital of the country and Balochistan and other rural regions having slower development (COFACE, 2019).  It is estimated that the informal sector of the economy is about 40% of the country’s GDP while the collected taxes contribute only about 15% of GDP (COFACE, 2019). As mentioned, indirect taxes account for about 61% of all collected taxes. The harm of this tax structure for the economy is that indirect taxes including import duties excise taxes and fees are essentially regressive which implies that they mostly strike the poorest segment of the population. Furthermore, the applied system of indirect taxes turned to be too complex and ineffective while the introduction of the value-added taxation was sabotaged by the opposition (Masood, 2018). As for the direct taxes, the number of tax payers is extremely low, namely about 1 million per 116 million of the working population. Moreover, tax avoidance has become a norm in Pakistan (Cevik, 2016).

This is very low compared to peer emerging economies which generates one of the most striking problems of the Pakistani economy, namely a great imbalance between the public sector income and expenditure (Masood, 2018). Excessive expenditure includes persistent losses of some public enterprises (IMF, 2018) and losses in the power sector (World Bank, 2018). In addition, ineffective public investment exaggerates the mentioned imbalance (Masood, 2018).

Finally, the country is being torn apart by political instability. It is hard to speak about sustainable economic growth when there is no clear vision of the country’s future perspectives and the chosen course may substantially change in case of the arrival of a new government. This also makes the country’s perspectives dimmer for foreign investors who fear for the safety of their capital (Tabassam et al., 2016).

3. Recommendations: Main Drivers of Sustainable Growth

The main recommendations are connected with addressing existing imbalances in the economy of Pakistan in favour of more effective mechanisms for managing and distributing funds. First of all, the disbalance between public consumption and revenues that has been existing for decades should be mitigated. The measures for attaining this goal can be the revision and reform of the tax system in terms of tax structure, increase in the volume of collected direct taxes and optimisation of the indirect taxes regulation. Along with that, the governance of public enterprises should be enhanced to reduce their losses.

Solutions to the problems in the agricultural and power sectors would also contribute to fostering economic growth. Baz et al. (2019) suggest that policymakers and regulators should revisit their policies in these two sectors to make them more attractive for foreign investors. In particular, building new hydropower dams is required to provide the additional volumes of energy to the industrial sector and mitigate the deficit of water.

In this light, the findings made by Uddin et al. (2019) should be taken into account. These authors revealed that institutional factors including government size, legal structure and strong property rights, trade liberalisation and civil liberty have significant positive impact on FDI inflows. Among the institutional factors, regulation was indicated to have the strongest influence on inward FDI flows to Pakistan. Moreover, outcomes obtained by Tabassam et al. (2016) showed that political instability had a considerable negative effect on economic growth in Pakistan in the previous periods. Therefore, the government should undertake corrective measures to ensure political stability in the country.

A potential driver of growth for the Pakistani economy aimed at addressing these problems is the realisation of the China-Pakistan Economic Corridor (CPEC) project. This strategic project has been designed to stimulate economic relationships in the region as it will connect Pakistan's Gwadar port with the north-western part of China by 2030 (Mirza et al., 2019). According to CPEC, over US$46 billion are planned to be invested in Pakistan's infrastructure and in industrial, power, and agricultural spheres. This will allow for reducing power outages by means of increasing electricity generation capacity and investing in other sectors of the Pakistani economy. Given these capital injections, Pakistan is expected to gain the targeted increase in GDP growth rate by 7.5% by 2030 and create additional 2 million jobs.  Pakistan's vision 2025 accounts for these investments and plans fast urbanisation up to the level of 50-60% of the entire population and acceleration of economic growth to the rate of 8% already by 2025 (MPDR, 2015).

To sum up, the perspectives of the Pakistani economy look vague in the long term. On the one hand, its potential for growth is represented by the ongoing increase in population and thus labour force as well as opportunities to increase its internal market. On the other hand, the existing imbalances between government revenues and expenditure, ineffective public spending, poor-balanced tax system, deficit of power and water and persistent political instability that frightens potential foreign investors, do not allow for gaining sustainable growth.

Alam, K. (2015) Pakistan has 18th largest ‘middle class’ in the world: report, Available at: https://tribune.com.pk/story/973649/pakistan-has-18th-largest-middle-class-in-the-world-report/, [Accessed on 17 February 2020].

Baz, K., Xu, D., Minua, G., Kwaku, A., Ali, I., Khan, I., Cheng, J. and Ali, H. (2019) Energy consumption and economic growth nexus: New evidence from Pakistan using asymmetric analysis, Energy , 189, pp.1-9.

Cevik, S. (2016) Unlocking Pakistan’s Revenue Potential, IMF Working Paper, Available at: www.imf.org/external/pubs/ft/wp/2016/wp16182.pdf, [Accessed on 17 February 2020].

COFACE (2019) Major Macroeconomic Indicators, Available at: https://www.coface.com/economic-studies-and-country-risks/pakistan, [Accessed on 17 February 2020].

IMF (2018) Pakistan’s First Post-Program Monitoring Discussions, International Monetary Fund Staff Report, Available at: www.imf.org/en/Publications/CR/Issues/2018/03/14/Pakistan-First-Post-Program-Monitoring-Discussions-Press-Release-Staff-Report-and-Statement-45724, [Accessed on 17 February 2020].

IMF (2019) Pakistan Country Data, Available at:  https://www.imf.org/en/Countries/PAK#countrydata, [Accessed on 17 February 2020].

Iqbal, A. (2016) Pakistan an emerging market economy: IMF, Available at: https://www.dawn.com/news/1218182, [Accessed on 17 February 2020].

Kaplan, S. (2012) Is Pakistan an emerging market? Available at: http://www.globaldashboard.org/2012/02/13/is-pakistan-an-emerging-market/, [Accessed on 17 February 2020].

Khan, B. (2019) Debt, taxes and inflation: Highlights from the last 10 years of Pakistan's economy, Available at: https://www.dawn.com/news/1403998, [Accessed on 17 February 2020].

Masood, A. (2018) Why Does Pakistan Have Repeated Macroeconomic Crises? Centre for Global Development, Available at: https://www.cgdev.org/sites/default/files/why-does-pakistan-have-repeated-macroeconomic-crises.pdf, [Accessed on 17 February 2020].

Mirza, F. M. Nishat, F. and Ullah, K. (2019) Impact of China-Pakistan economic corridor on Pakistan's future energy consumption and energy saving potential: Evidence from sectoral time series analysis, Energy Strategy Reviews , 25 (2), pp. 34-46.

MPDR (2015) Pakistan 2025: One nation - One vision, Ministry of Planning, Available at: https://planipolis.iiep.unesco.org/sites/planipolis/files/ressources/pakistan-vision-2025.pdf [Accessed on 17 February 2020].

PBS (2017) Provisional summary results of 6th population and housing Census-2017, Pakistan Bureau of Statistics, Available at: https://web.archive.org/web/20171015113737/http://www.pbscensus.gov.pk/, [Accessed on 17 February 2020].

Tabassam, A. H., Hashmi, S. H. and Rehman, F. U. (2016) Nexus between Political Instability and Economic Growth in Pakistan, Procedia - Social and Behavioural Sciences , 230, pp. 325-334.

Uddin, M., Chowdhury, A., Zafar, S., Shafique, S. and Liu, J. (2019) Institutional determinants of inward FDI: Evidence from Pakistan, International Business Review , 28 (2), pp. 344-358.

World Bank (2018) Electric power transmission and distribution losses (% of output) – Pakistan, Available at: https://data.worldbank.org/indicator/EG.ELC.LOSS.ZS?locations=PK, [Accessed 17 February 2020].

World Bank (2019) The World Bank In Pakistan, Available at: https://www.worldbank.org/en/country/pakistan/overview, [Accessed on 17 February 2020].

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Short essay on Pakistan’s Economy

Pakistan is a developing country and like many other developing countries Pakistan has a semi industrialized economy and basically comprises of textiles, chemicals, food processing, the agricultural sector and various other industries. It is a surprising fact that Pakistan’s economy is the 27 th largest growing economy in the world when measured in terms of Purchasing Power Parity (PPP). The economy has suffered from political instability, rising population growth rate and a war of words with the neighboring country India which has proved to be very costly for Pakistan’s economy.

There is worldwide financial crisis and rising inflation due to which Pakistan’s economy is suffering from a balance of payment crisis. The IMF initially loaned Pakistan $7.6 billion in 2008 to avoid a BOP crisis and this was increased to $11.3 billion in the year 2010. For Pakistan’s economy the mid 2000s proved to be the most fruitful as the country experienced a GDP growth rate of 7% on an average from 2003-2007. In the year 2007 Pakistan was able to increase its foreign reserves substantially to about $16.4 billion. This was a period during which the country’s trade deficit was in control and there was a rise in revenue generation. Pakistan was able to attract foreign investments up to $8.4 billion and the country’s exports rose over $18 billion. However, Pakistan’s growing economy suffered a substantial blow in the year 2008 as the role of Pakistan in the “War on Terror” started facing severe retaliation. This increasing uncertainty and instability caused the country to lose a major crux of its FDI as it fell from $8 billion to $3.5 billion. After 2008 Pakistan’s situation does not seem to improve. The economy suffers from heavy trade deficits, rising inflation rates and a fall in the value of Rupees which fell from 60-1 USD to 90-1 USD in 2012.

The rising level of security concerns has furthered the economy near to a collapse. Pakistan is considered to be in a state of war and is a victim of terrorism for the past few years. This has caused economic and political instability in the country resulting in a fall in foreign investments. Many of the people do not feel safe in the country due to which skilled labour from Pakistan is migrating to other developed nations. They do not want to risk their time and resources in an uncertain economy where they feel they would not be paid a price according to their skills. Foreign investors do not feel comfortable in investing in Pakistan’s economy because the returns are not enough to match the risk in investing in a weakened economy like Pakistan. Other than this they do feel that their lives are not safe as they could also become victims of terrorist groups operating in the country.

Although Pakistan’s economy is facing severe economic problems at the moment, it still has the potential to recover and revive its economy but to do that serious amounts of efforts are required at both the governmental and individual level.

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