Inflation and Growth an Analysis of Recent Trends In Pakistan

Keywords : Growth, Inflation
Publication Year : 1989

Inflation in Pakistan has once again crossed the single digit threshold during the· Eighties. It declined continuously from 11.9 percent in 1980-81 to 4.8 percent in 1986-87;but it has been rising since 1987-88. The PIDE’s Macroeconometric Model predicts an inflation rate of 10. 7 percent for the year 1989-90. The focus of policy-making has, therefore, shifted to controlling the rate of inflation. One may begin by asking; what has caused the recent upsurge in the price level? The large budgetary deficits, associated with an increase in money supply at a rate of 12.2 percent during 1987-88, have been cited as the main culprits. Such a belief seems to underlie the IMF policy package, which advocates that to fight inflation the budgetary deficit should be slashed from the all-time high level of 8.6 percent of the’ GDP reached in 1987-88 to 4.8 percent of the GDP by the year 1990-91; and that the growth rate of bank credit should be held down below the growth rate of the nominal GDP at the target inflation rate till the ‘ year 1990-91.