This document discusses stagflation in Pakistan and the ineffectiveness of monetary policy. It covers three periods of stagflation in Pakistan from the 1970s to today. The current situation includes high inflation, energy crisis, and economic mismanagement. Causes of stagflation include reduced productive capacity and inappropriate fiscal and monetary policies. Monetary policy conducted by the State Bank of Pakistan has been ineffective at controlling money supply and inflation due to a lack of coordination with fiscal authorities. Suggestions include attracting FDI, reducing inflation pressures, enforcing effective monetary policy, and improving tax collection.

2. Stagflation and
In-effectiveness of
Monetary Policy

3. Presented By:
Muhammad Zeeshan Azam (123220)
Fazeel Ahmad (123221)
Semester : Fall-2013

4. Table of Contents
 Introduction to Stagflation
 Periods of Stagflation in Pakistan
 Current Situation
 Causes of Stagflation
 In-effectiveness of Monetary Policy
 Suggestions and Conclusion

5. Introduction to Stagflation
Combination of two major economic conditions
 Stagnation :The economic growth rate slows down, and
unemployment remains steadily high.
 Inflation: The increase in overall price level
 Stagflation: A situation where an inflation rate is high, the
economic growth rate slows down, and unemployment remains
steadily high

6. ds

7. The Periods of Stagflation
Pakistan has faced three periods of stagflation
 First period of stagflation
 Second period of stagflation
 Third period of Stagflation

8. The first period of stagflation
 Began in 1970s
 After the disastrous succession of East-Pakistan
 It was subsequently ended by the military government
of Zia-ul-Haq in 1980s

9. Second period of stagflation
 Began in 1990s
 Benazir Bhutto and Navaz Sharif attempted to
tackle the stagflation
 Subsequently ended by Shaukat Aziz in 2000s.
Third period of Stagflation
 After the 2008 elections and the wide spread of
militancy in the Western Pakistan, which would
later follow the crisis

10. Current Situation
 Economic cancer
 Crippling energy crisis, terrorism, financial corruption and
economic mismanagement by the last government
 Increase in sales tax rate from 16% to 17% (June 2013)
 Rupee depreciation
 In increase in prices of imported consumer and non-consumer
items
 In October 2013, total food inflation was at 9.8%

11. Causes of Stagflation in Pakistan:
 Reduced productive capacity of an economy
 Inappropriate macroeconomic policies (fiscal and monetary)
 Lower Tax/GDP ratio leading to higher fiscal deficit
 Higher government borrowing from State Bank
 Unemployment is another factor which causes stagflation
 Social crimes are also be seen in the country

12. In-Effectiveness of Monetary Policy
 The monetary policy is conducted by the central
bank
 State Bank of Pakistan is fully capable of
implementing its own independent monetary
policy
Two broad objectives
 Secure monetary stability
 Find fuller utilization of country’s productive
resources

13. Reasons for In-effectiveness
 Lack of coordination between Fiscal and Monetary
Authorities
 SBP failed to control money supply
 Failed to control rate of inflation within the set
target level.

14. Suggestions and Conclusion
 Government has to take some positive and tangible measures
to attract Foreign Direct Investment (FDI)
 Stop capital flight from the country
 State Bank of Pakistan should reduce the inflationary
pressures
 Enforcing an effective and independent monetary policy in
the country

15. Continued…
 Enhanced central bank independence will improve
monetary policymaking
 Government should focus on revenue side to
improve the tax to GDP ratio
 It is suggested by IMF to generate 1.5million
employment per year