Case study 2:Inflation in Pakistan

Introduction

According to the Pakistan Bureau of Statistics, inflation measured by the Consumer Price Index clocked in at 5.8 percent in April over a year ago. This is the lowest level since April 2004 when CPI inflation stood at 5.99 percent. Inflation in Pakistan had slipped to a nine-year low in April despite an expansionary fiscal policy pursued by the finance ministry.

Causes

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.

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.

Foreign Remittances

Increase in foreign remittances is increasing the money supply in our country. Increase in money supply leads to inflation.

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.

Consumption Trends

Pakistanis are starting to follow consumption trends brought over from the West. In a bid to mimic luxurious lifestyles, there has been in an increase in consumption trends. This thus leads to inflation.

Population Bomb

As the population of Pakistan is increasing day by day, overall demand for goods and services will also increase, hence contributing to inflation.

Slow Agricultural Development

Low growth rate of agricultural sector causes a shortage of productivity. It results in low supplies of goods and services and the inevitable increase in price level.

Slow Industrial Growth

Pakistan's industrial sector is not as developed technologically developed. Inferior production rates also creates shortage in market and caused in inflation.

Increase in Wages & Salaries

Labour costs have increased in Pakistan, resulting in an increase in factors of production. On the other hand, due to more wages and salaries there is an increase in income and it causes inflation.

Effects

One of the most significant issues in Pakistan would be the astonishing numbers of child labourers.  In order to meet the over-excessive demand of resources, and due to the fact that many live in impoverished circumstances, child labourers are apparent as families need to make ends meet. The Human Rights Commission of Pakistan estimated in 2005 that there would be 10 to 12 million child workers in Pakistan by 2010-11. However, according to an All-Pakistan Labour Force survey, this number has doubled to about 21 million child workers. It shows the gravity of the situation. The main reason is poverty, while the low literacy rate has also contributed to the problem to a large extent. According to the above survey, over 21 million child labourers between the age of 10 and 14 years are working in the country. Out of which 27 per cent are girls and 73 per cents are boys. Children who are our future are uneducated, and parents treat them as a burden.

Measures

At present, the government has implemented a few measures to reduce the impact of inflation on the lower level income groups. For one, the government has sold essential commodities at cheaper rates. The government has also allowed the import of various items through land routes from neighbouring countries in a bid to reduce the prices of certain goods.

Possible measures would include the encouragement of domestic production rather than imports. Investments should also be focused on the production of consumer goods rather than luxuries., Agriculture sector should be given subsidies, foreign investment should be attracted, and developed countries should be requested for financial and managerial assistance. And lastly a strong monitoring system should be established on different levels in order to have a sound evaluation of the process at every stage. This monitoring system should be in place to inflict strict control over the supply of money and evading any relaxation to the supply of money.