IS INFLATION A HURDLE IN THE ECONOMIC DEVELOPMENT OF

PAKISTAN?

According to the Monetary policy viewpoint released by the Pakistan institute

of development economic (PIDE), there are clear signs that Pakistan will
witness low economic growth in the coming year and high inflation.

The inflation rate in Pakistan was last reported at 12.91 percent in February
of 2011.Rising interest rate in the recent years have had little impact on
reducing the rate of inflation.

According to the PIDE, the government is borrowing beyond the agreed level
form the State Bank of Pakistan (SBP) and SBP is not able to restrain the
level of borrowing. When the government expands its borrowing, the
inflation rate ultimately rises. Borrowing is increasing liquidity in the system
with the increase in money supply.

The hit of high inflation rate is being taken up the private sector. Higher
interest rate means increased cost of borrowing from the private sector,
which discourages the demand to take credit from this sector. On the other
hand if the demand of credit from the private sector tends to fall, the level of
private investment also falls. Decreased private investments will lead to low
level of employment in the country, which will in turn affect the economic
growth of Pakistan adversely.

Here, a tight monetary policy must be introduced so that economic stability

can be brought in the country and the economy sustains economic growth.
The ultimate growth of the monetary policy must be to bring down the
inflation rate and promote investment to increase the level of employment.

http://timesofpakistan.pk/category/pakistan/
 Country Interest Rate Growth Rate Inflation Rate Jobless Rate Government Budget Exchange Rate
Pakistan 14.00% 2.00% 12.91% 5.50% -6.30 84.9000

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2011 14.19 12.91
2010 13.68 13.04 12.91 13.26 13.07 12.69 12.34 12.79 13.77 14.17 15.48 15.46
2009 20.52 21.07 19.07 17.19 14.39 13.14 11.17 10.69 10.12 8.87 10.51 10.52
2008 11.86 11.25 14.12 17.21 19.27 21.53 24.33 25.33 23.91 25.00 24.68 23.34

30

25

20
2011
15 2010
2009
10
2008
5

0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
http://www.tradingeconomics.com/Economics/Inflation-CPI.aspx?Symbol=PKR