MINI PROJECT REPORT

An overview of
Impact of inflation on economic growth of Pakistan
In partial fulfilment for the award of MBA

By
Rokati Sai Anvitha
(Roll no.- M22MB022)

Under the supervision of

K. Shashank
(Asst. Prof. Dept of Management)
 ACKNOWLEDGEMENT

I, express my deep sense gratitude to Sri. K. SHASHANK, Asst.

Prof, Department of Management, Kakatiya Institute of Technology &
Science, Warangal for permitting me to carry out this report and
guiding me throughout this Endeavour, and also helping me to
complete the report.

I, also express my sincere thanks to Dr V. Nivedita Reddy, HEAD OF

THEDEPARTMENT, Kakatiya Institute of Technology & Science,
Warangal.

My utmost thanks also go to the FACULTY MEMBERS of

DEPARTMENT OF MANAGEMENT for their co-operation and help
for the completion of this report.

Finally, my sincere thanks to one and all who have been

contributed to my work directly or indirectly.

With Gratitude
R. Sai Anvitha
(M22MB022)
 DECLARATION

I, ROKATI SAI ANVITHA with the bearing Roll no. M22MB022.

Hereby declare that the seminar report entitled an overview of
“Impact of inflation on economic growth of Pakistan” is submitted
by me for the partial fulfilment for the award of the degree of Master
of Business Administration to the Department of Management,
Kakatiya Institute of Technology and Science, Warangal.

R. SAI ANVITHA
M22MB022
 CONTENTS

TITLE Page no.

CHAPTER – 1 (1-2)

1.1 Introduction 1
1.2 Need of the study 2
1.3 Objectives 2
1.4 Research Methodology 2
1.5 Limitations 2

CHAPTER – 2 (3-8)

2.1 Impact of economy 3

2.2 Government struggles 4
2.3 Problems faced by the people 5
2.4 Skyrocketing in Inflation 6
2.5 Causes of inflation 7-8

CHAPTER - 3 (9-10)

3.1 Conclusion 9
3.2 Bibliography 10
CHAPTER - I
1.1 INTRODUCTION:

High and sustained economic growth with low inflation is the central objective
of the macroeconomic policy makers. Therefore, inflation has been one of the
most researched topics in macroeconomics for the last many years because it
has serious implications for economic growth. Inflation, by increase in
aggregate demand is called ‘demand-pull inflation’ while supply shocks are
supposed to cause ‘cost push inflation’. This is supposed to have a strong
positive correlation with the output gap.

The relationship between growth and inflation, however, depends on the

state of the economy. High growth, without an increase in inflation, is possible
if the potential output of the economy is growing enough to keep with demand.
It is also possible if the actual output is below the potential output and there is
sufficient spare capacity available to handle with the demand pressures. High
inflation is always correlated with increased price variability, which can lead to
uncertainty about the future profitability of investment projects. This leads to
more conservative investment decisions than would otherwise be the case. It
will, ultimately, leads to lower levels of investment and economic growth.
Inflation may also impact on economy’s balance of payments by making its
exports relatively more costly. Moreover, inflation can interact with the tax
system to disturb borrowing and lending decisions. Firms may have to allocate
more resources to dealing with the effects of inflation. This study aims to
consider these entire situations in the contest of economy of Pakistan. It is to re-
investigate inflation and growth relationship of current Pakistan economy.

An inflation rate of 2% is largely accepted as being healthy for economic

growth, referred to as the optimal inflation rate. But if this rate starts increasing
irregularly and tends to reach higher levels, then it is a threat to the economy. In
this context, economists tend to focus on the macroeconomic aspects by delving
into how monetary and fiscal policy and economic shocks affect inflation and
vice versa. But there has been very little debate on the multifaceted impacts of a
protracted period of inflation, which leads to a serious issue of the public health
crisis.  Therefore, it is necessary to comprehend both the conventional and non-
conventional implications of inflation.
1.2 NEED OF THE STUDY:

This study gives a brief report about the current Inflation situation and
economic growth decline in Pakistan. This study aims to consider these entire
situations in the context of economy of Pakistan and it helps to find out a
relationship between the inflation and growth of Pakistan at the current
scenario.

1.3 OBJECTIVES OF THE STUDY:

1. To study the impact of inflation on economic growth in Pakistan.

2. To know the problems faced by people of Pakistan due to inflation.

3. To evaluate the key factors leading for economic crises in Pakistan.

1.4 RESEARCH METHODOLOGY:

Data collected through secondary sources

 Internet
 Research articles
 Newspapers
 Magazines

1.5 LIMITATIONS:

1. This study is based on secondary data only.

2. This is not a field study so there are certain limitations.
CHAPTER - II
 2.1 Impact of the economic growth in pakistan

Pakistan has been going through serious economic crises leading to the highest
inflation rate of 31.5% in the past decade. This paced increase in inflation has
decreased purchasing power which has resulted in a stark decline in the standard
of living. Currently, in Pakistan, business after business is closing which has
increased the unemployment rate from 6.3 percent to 9.1 percent and intensified
the crisis. This inflationary pressure can hamper the capability of youth to learn
and acquire skills because in such circumstances the youth is more concerned to
earn a living and supporting their family than acquiring skills. Thus, in the past
four years, the lower-middle-class and lower-class have lost 30% of their
purchasing power.

As far as cost of production is concerned, land prices in Pakistan increased

substantially over the years. The cost of technology, raw materials and
machines increased due to their imports when the rupee-dollar parity was in
favor of the dollar that rose to Rs.285 on the inter-bank exchange and to more
than Rs. 300 in the open market making it difficult for importers to pay for
costly imported inputs. Many productive units in the country have closed in
January-March 2023 rendering unemployment of those that have been
downsized. The policy interest rates were increased to 200 points or at 20% and
it is envisaged that they will be further increased to 22% in the near future,
increasing the cost of borrowing by the private sector. The argument is that the
increase in policy rate would control inflation, but when the policy rate was 7%
to 9.75%, the inflation in the country was relatively low and at 20% the inflation
has increased substantially. It should be known that the inflation is cost-push to
which high interest rates would contribute in two ways – one, would make it
expansive for the businesses to borrow and two, would contribute to increase in
prices of finished goods and services, therefore the contractionary policy would
bring down GDP growth and investment levels.
Government struggles to stabilise economy

Simply speaking, the GDP of any country is the circular flow of incomes and
expenditures between the firms and the households in money terms, and a
circular flow of factors of production and goods and services between the
households and the firms as a real economy.

Therefore, the welfare aspect of the economy is when GDP growth rates are
more than the population growth rates. This is not the case, because the
population growth rate is almost 3% while the GDP growth rate is 2%, when it
should be at least 6%. With high policy rates (to control demand-pull inflation)
are 20% contributing to high inflation, with indirect taxes high at 25%
contributing to inflation, with energy costs increasing substantially and the
rupee-dollar parity deteriorating substantially and the phenomena of corruption
among government functionaries at different tiers of governance, and other
inefficiencies effecting adversely on free market mechanisms, with serious
political instability in the country. 

The high inflation rates are not only bringing down the GDP growth rate that
has affected adversely the productive capacity of the economy and the
employability of the private sector, but also contributes to deterioration of the
buying power of the poor and the people of the lower strata in Pakistan. The
poor are in crisis, the middle classes are in crisis, the producers and investors
are in crisis. There is no substantial long-term economic policy that can give
respite to investors and consumers alike in these days of political upheavals. A
further decrease in GDP growth rate would usher in a state of economic
depression that might not be controllable with ad hock policies measures. 
2.2 Problems faced by the people of Pakistan due to inflation

Inflation and price hike has affected everyone badly. High prices of each and
every thing has made it very difficult for poor and middle class to survive and
feed their families. Their Ruling and upper class has nothing to do with the
issues of common people. They are enjoying all facilities of their lives without
thinking about the poor. Their Channels and media houses are giving more
coverage to upper and ruling class. Non issues are addressed and discussed
more while common and basic issues of general public are ignored and not
taken seriously. Politics and interests of ruling class are focused and given more
attention while general publics issues like  unemployment, inflation, terrorism,
lack of basic necessities etc are not given much attention.

The real income of people has declined drastically due to the massive increase
in the inflation rate in the past months. A median income of Rs. 30,000  10
months ago is now equivalent to 20,100, which reflects the pace and magnitude
of a massive decline in the purchasing power of the populace.
If we look at the figures and numbers given by government, everything seems
fine but ground realities are entirely different. Poor is becoming poorer day by
day. People don’t have earning power. Job market is very poor and majority of
educated, skilled and talented youth don’t have jobs. Situation is getting worst
and problems for the poor are raising day by day. People have nothing to do
with the figures and numbers. They look at the ground realities which are
miserable.
If we look at the developed and welfare countries, we come to know that they
have excellent and people friendly system and conditions for poor in general.
They collect tax and then use the tax money for the welfare of people. They do
their best to make the lives of common people easy and comfortable. Their
prices mostly remain same or raised once a year. With raise in the prices they
increase the rates of minimum wages as well. Prices hike doesn’t affect them as
government provides them as much relief as possible. While their situation is
entirely opposite. Tax is stolen by powerful and the amount collected anyhow
either goes in the corrupt hands or is used to facilitate the upper and privileged
class.
Pakistan is an oil dependant country and unfortunately prices of our all items
depend mostly on the rates of oil. They failed to promote and use the alternate
sources for fuel. They didn’t worked effectively on solar, wind, sold waste, coal
and bio gas systems etc and just relied on petrol and diesel etc. they are far
behind in innovation, research and development. They are using traditional
means of
getting energy and are not using modern techniques and tools. They should
work on this important sector as well and should reduce our dependency on
petrol and diesel.

People suffer from skyrocketing in inflation

All prices go up with increase in the fuel prices. Local vendors and investors
raise the prices themselves. We don’t have a proper monitoring and control
system for prices at government level. We really need an effective and powerful
prices control and regulatory authority. People tax money should also be used to
provide them the subsidy and burden of prices hike and inflation should be
shared by government as well.
They focus much on loans from international resources like IMF and World
Bank etc. They give us loans on their own terms and interests without
considering the issues of poor and common people. Ultimately, all burden
comes on the shoulders of poor. According to my research and analysis, if we
streamline our processes and minimize the leakages then we can reduce the
dependency on foreign loans. They need to reform and re-organize our tax
system. Main thing is transparency and honesty. If tax is collected and used with
full responsibility and in a transparent way then the things might go in good
direction. They have to get rid of corruption and without doing this we can’t
achieve our goals. The rate is of tax is also a big issue. Commonly used and
basic items should be tax free. More tax should be collected from luxury items.
Unfortunately, they collect more tax from poor in form of general sales tax and
very less in term of income and property tax from upper class. They need to
make a system to collect more from upper and privileged class and spend it to
facilitate all. They need to win the confidence of investors and rich as well.
They have to ensure them that the tax collected from them will be used to
facilitate them and the common people of the country. They need to minimize
the burden on poor and help this class to stand on their feet for bringing them in
the tax net.
Last but not least, they need solid and practical actions to overcome the
common people’s issues. If they take up the matters with sincerity then nothing
is impossible to achieve but the main thing is to act rather than merely speak
and promise.
2.3 Key factors leading for economic crisis in Pakistan

service providers are content with making money through tax evasion rather
than struggling on the Why Pakistan’s economy has failed and is in crisis should
be seen by looking into the productivity of the four factors of production as well
as by analyzing the performance of the four sectors that contribute to the GDP
of the country, namely Agriculture, Industry, services and the government
sector. 

Every economy is firmly built on the four pillars called factors of production –
land, labor, capital and entrepreneurship (that have management skills, can
employ the right person for the right job and take risk for greater profits).

  Pakistan lacks financial resources, has a debt of approximately 85% of its

GDP. Pakistan lacks technological resources and must import machines,
technology, know how, and raw material at the cost of its foreign exchange
reserves that are diminishing fast. Pakistan lacks energy resources (oil and gas)
that are also imported at huge costs to its balance of payments and foreign
exchange reserves. 

Over the years the largest contributor to Pakistan’s GDP is the services sector.
51% og GDP comes from the services sector. Banking, Telecommunications,
Insurance, Doctors, Lawyers, Professors and Journalists etc. As well as
restaurants, marriage halls and all form of retail business is flourishing in the
country, but it is interesting to note that very little o this business has been made
exportable. Rather most retail depends upon imported luxury items. The
inability of the services sector to earn foreign exchange with the world wide
web and become combatable needs to be explored further. Lack of branding is
just one reason, lack of initiative to breakthrough in international market can
only be contributed to the massive inefficiencies that prevent the service sector
to be internationally compatible. Most highly comparative world market. 
Crisis in Pakistan Causes:
Some of the major reasons for the current situation in Pakistan are:

 2022 floods: The floods in Pakistan in 2022 cost the nation an

unprecedented $3 billion in damages, destroyed essential infrastructure,
uprooted 8 million people, and reduced domestic output.
 Economic policies that are inconsistent and procyclical: Many of
Pakistan’s growth-enhancing initiatives came at the expense of growing
vulnerabilities and enduring structural and institutional shortcomings.
 Local problems: According to analysts, Pakistan’s distribution
challenges are more of a concern than its insufficient supply levels, which
have led to shortages and price increases.

Major effects of inflation

1. Unemployment
2. Rupee depreciation
3. Foods
CHAPTER - III
CONCLUSION:

On the basis of this study, it can be recommended to keep the inflation below
the
level of 7 percent in the economy. Therefore, the policy makers and the State
Bank of
Pakistan should concentrate on those options which keep the inflation rate
stable and
below the level which has been found helpful for the achievement of sustainable
economic growth. Moderate and stable inflation is also helpful for minimizing
the
fluctuations and uncertainties in the financial sector of economy, which, in
turn, boost the
capital formation activities in the country. So that it may exert its positive
effects on the
economy. So, maintaining price stability will ultimately be the best policy
recommendation to stable and sustained economic growth of the economy
In short, Pakistan needs a robust growth rate that can produce a spectrum of
goods and services and energy resources from home and enable cost of doing
business to decrease so that investors can invest in productive resources,
increase employment levels. Inflation should come down to permissible levels
that can be an incentive both for the demand side as well as for the supply side.
Policy interest rates must be in the single digits, so that the cost of borrowing
should decrease. All this can only be done when the government is a facilitator
to economic uplift rather than a player that squeezes the economy through taxes
and interest rates. Both the fiscal policy as well as monetary policy of the
current government is contractionary in an economy that needs robust growth.
These polices need to be poised against each other, rather than move in the
same direction to solve the issues of unemployment and inflation in the
domestic economy and issues of trade imbalance (deficit) and adverse exchange
rate in favor of the dollar in the external economy

On the basis of these study, it can be recommended to keep the inflation below
the level of 7% in the economy there for the policy makers and the State Bank
of Pakistan should concentrate on those options which give the inflation rates
stable and below the level which has been formed sustainable economic growth
moderate and stable inflation is also useful for minimising the fluctuations and
uncertainties in financial sector of economy which intern boost the capital
formation activities in the country so that it may exert its positive effects on the
economy so maintaining price stability will ultimately be the best policy
recommendation to stable and sustained economic growth of the economy.
3.2 BIBILOGRAPHY:

1. https://www.linkedin.com/pulse/effects-inflation-pakistan-
ayesha-noor
2. https://www.researchgate.net/publication/
263729192_Does_Inflation_Affect_Economic_Growth_The_
case_of_Pakistan
3. https://moderndiplomacy.eu/2019/08/04/inflation-a-big-
problem-for-the-people-of-pakistan/
4. https://www.outlookindia.com/international/pakistan-
people-suffer-from-skyrocketing-inflation-as-govt-struggles-
to-stabilise-economy-get-bailouts-news-277095
5. https://byjus.com/free-ias-prep/pakistan-economic-crisis-
upsc-notes/
6. https://www.linkedin.com/pulse/why-pakistans-economy-
has-failed-professor-dr-qais-aslam?trk=article-ssr-frontend-
pulse_more-articles_related-content-card