Economic growth

The GDP growth rate oI Pakistan has shown a general n-shaped trend Ior the past ten years,
starting Irom 2000 to 2010.

Figure 1: GDP growth rates for the financial years of 2000 to 2010
The peak oI the decades was seen in 2004 and 2005 with respective growth rates oI 7.37 and
7.67. The lowest dip recorded in this situation was seen in 2008 during which the Global
Financial Crisis had begun spreading its eIIects to other parts oI the world. The result oI the
global meltdown was a steep decline in growth rate to 1.6 Irom 5.68 in 2007.
The average growth rate oI the South Asian region is 5.5 and during 2003-2007, Pakistan
seemed to have picked up on this average, however perIormance started to Iall below average
aIter 2008 and is expected to remain below average Ior the next Iive years.
During the period oI peak perIormance, even aIter the 8
th
October earthquake, Pakistan managed
to have high growth rate due to economic reIorms by the government where industrial and
service sector Ilourished and banking sector privatization took place. The World Bank labeled
Pakistan in 2005 as the top reIormer in South Asia and among Top 10 in the world.
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1
2
3
4
3
6
7
8
9
2000 2001 2002 2003 2004 2003 2006 2007 2008 2009 2010
Due to the Global Financial Crisis and the record high inIlation rate oI 25 in 2008, economic
growth rate declined. Pakistan was in a Balance oI Payment Crisis which caused increased loans
Irom IMF that would eventually lead to higher debt to GDP ratio.
The War on Terror also contributed to the declining growth oI Pakistan where Foreign Direct
Investment Iell by $3.5-$8 billion Ior the current year. Political stability and tensions between
India Iurther contributed to Pakistan`s post 2008 growth rate decline.
Although the Economic Intelligence Unit estimates that by 2011, Pakistan will be able to achieve
the 5-5.5 GDP growth rate, it may seem impossible since Pakistan is still Iacing political
instability, corruption, conIrontation with India and the unresolved energy crises. The shortIall oI
electricity that has caused rescheduling and overall reduced production in the whole country has
still not been challenged with a permanent solution Ior example wind energy setup. The hours
wasted every single day causes underproduction and will signiIicantly reduce the overall output
oI the economy.
nflation
InIlation is regarded as a general increase in price oI goods and services that are used by
individuals. As a result each unit oI currency buys lesser amount oI goods than it would have
beIore. It is usually calculated over a period oI time using diIIerent indexes like Consumer Price
Index (CPI), Wholesale Price Index (WPI), GDP deIlator, etc. and this inIlation rate determines
the growth opportunities, savings and investments, economic growth oI a country. InIlation
eIIects on an economy can have its pros and cons, but generally higher inIlation rate means that
the economy is going to suIIer. The task oI monitoring and controlling inIlation is usually given
to monetary institutes like banks that are responsible Ior directing the Ilow oI money supply.
In Pakistan, State Bank is in charge Ior regulating the Ilow oI money in the market through
setting oI interest rates, setting oI banking reserve requirements and Ior implementing monetary
policies. In the recent years the inIlation rate has been on the increase, as the Consumer Price
Index (CPI), an indicator that measures changes in price level oI consumer goods and services
purchased by households; has increased.
This increase in inIlation over the years has on one hand created problem Ior the individuals and
on the other has also reduced investment, since people Iind it diIIicult to make both ends meet.
The government is cautious about inIlation and is taking steps to reduce it by enhancing supplies
and easing demand pressures. The State Bank has tightened its monetary policy in order to ease
demand pressure whereas the government is ensuring to increase supply oI basic items to the
public at a convenient price by relaxing its import regime on necessity items so that they are
available with everyone. All these eIIorts have been in vain so Iar as the CPI rose Irom 7.89
percent in 2006-2007 to about 25 percent in 2010-2011. In addition to that the inIlation rate was
last reported at 11 percent in October 2011, whereas the average inIlation rate in Pakistan was
10.15 percent Irom 2003-2010.
Although the government is trying hard to cope with this problem but economist predict that the
inIlation rate will continue to rise in the coming years, until or unless the government takes some
serious steps to reduce its expenses and cover budget deIicit without borrowing Irom
international and national institutes, ensure abundant supply oI goods needed, and become selI
reliant and less dependent on imports.