Inflation and its impact on poor people

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2. National Institute of Management,
Karachi
29th Mid-Career Management Course (MCMC)
(Monday 03rd February, 2020 to Friday, 08th May, 2020)
Current Issue Presentation
“Recent Inflation in Pakistan-Its impact on
poor people”
Asif Raza
Ex-Cadre (NAB)
Dated: 19th March, 2020
Faculty Advisor: Mr. Asif Ali Kakepota (CI)
By
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3. Sequence of Presentation
 Introduction
 Types of inflation
 Currency of the Topic
 History of inflation from 2002 to 2019
 Challenges & issues-Causes of inflation
 Analysis /Impact
 Comparative Analysis
 Conclusion/ Findings
 Recommendations
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4. Introduction
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Defining Inflation
 Inflation is a quantitative term.
 It measures the rate at which the average price level of a basket
of selected goods and / or services in an economy rises up over a
period of time.
 Constant increase in prices such that a unit of currency losses it
worth and could buys less than it did in previous periods

5. Introduction
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Defining Inflation
 Inflation is defined as a sustained increase in the price or a fall in the value
of money.
 An increase in the supply of money or credit than in the production of good
and services, resulting in higher prices and fall in the purchasing power of
money.
 As per Keyns Inflation is an imbalance between aggregate demand and
aggregate demand.
 According to C.Crowrowther, “Inflation is state in which the value of
money is falling and the prices are rising”
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6. Currency of the Topic
 Sharp rise in inflation crossing two digits
 Measured by the Consumer Price Index (CPI) on YoY
basis
 Rose steeply by 13.07 % in Jan 2020 as compared to
12.42 percent in Dec, 2019 and 5.84% percent in July,
2018
 Very disturbing for the ordinary households, the poor
and also for the representatives of the country.
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7. CAUSES
THAT MAY BRING ABOUT INFLATION
 Increase in public spending
 Deficit financing or Govt Spending
 Population Growth
 Hoarding
 Genuine shortage
 Tax reduction
 Imposition of indirect taxes
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8. FORMS OF INFLATION
 Demand-Pull Inflation-
• Caused due to excessive demand due to increased private
and Govt spending etc
 Cost-Push Inflation-
• Caused by drop in aggregate supply. The may be due to
increased prices of inputs or due natural disasters.
 Hyper Inflation
• Price level goes on rising at very fast rate, often happens
hourly increase in price level.
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9. FORMS OF INFLATION
 Creeping Inflation-
• The price level increases very slowly over a period of time, 2%
per annum is considered a necessary condition of economic
growth.
 Moderate Inflation-
• The rise in price level is neither too fast nor too slow.
 Galloping Inflation
• Price level increase at two-digit or three-digit rate per annum.
Galloping inflation is also known as jumping inflation.
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10. HISTORY OF INFLATION
FROM 2002 TO 2019
10
0
5
10
15
20
25
,2002 ,2003 ,2004 ,2005 ,2006 ,2007 ,2008 ,2009 ,2010 ,2011 ,2012 ,2013 ,2014 ,2015 ,2016 ,2017 ,2018 ,2019
Inflation
Source: www.worlddata.info

11. HISTORY OF INFLATION
FROM 2002 TO 2019
11Source: Trading Economic International

12. CHALLENGES & ISSUES-CAUSES OF
INFLATION
 Money Supply and Increase in Demand
 Rise in Production Cost
 Depreciation in Money Value
 Debt Burden (National and International)
 Tax Burden
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13. CHALLENGES & ISSUES-CAUSES OF
INFLATION
 Money Supply and Increase in Demand
 Rise in Production Cost
 Depreciation in Money Value
 Debt Burden (National and International)
 Tax Burden
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14. Impact of Inflation
Positive effect
(If between 2% To 4 %)
• Increase in production
• Increase employment
• Increase economic activities
that may cause to inventions.
• Profit of the producer also
increases when there is normal
inflation.
Negative effect
• Hoarding
• Lowers national savings
• Very bad effects on poor
labor force.
• Reduces the living standard
and purchasing poweer
• Harmful for creditors
• Fall in the export income
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15. Analysis / Findings
• Foreign reserves belong to the whole nation – the
government and private sector while budgetary
resources belong to the Government alone.
• An important tool for monetary policy and exchange
rate determination
• In a crisis situation, it helps to stabilize the economy
without approaching IMF & WB etc.
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16. Analysis / Findings
• Pakistan Ranks 136/190 (ease of doing business, World
Bank report 2019)
Case Study:
• In 2015, Greece was not able to do this. It then used its
reserves with the IMF to make a debt payment to the
European Central Bank. The huge sovereign debt the
Greek government incurred led to the Greek debt crisis.
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Source: Amadeo, Kimberly. (April 18th, 2019) Foreign Exchange Reserves & How They Work, The Balance
(https://www.thebalance.com/foreign-exchange-reserves-3306258)

17. Conclusion
• Maintaining foreign currency reserves is vital to the economic
health of a nation.
• FERs in Pakistan are continuously decreasing
• It impacts our economy badly.
• FERs need to be stabilized and should be in excessive
quantity for smooth inflow and outflow of trade
• In 2018, our economy was in crisis, which the new
government is trying to stabilize it through its aforementioned
policies.
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18. Workable Solutions
S.# Action / Proposal
Responsible
Government
organization/depart
Time
Frame
Expected
Outcome
1
Increasing Freelancing
/Entrepreneurship
Jawan Program Continuous
Inflow of Dollars
from foreign
countries
2
Providing incentives to
the Pakistanis living
abroad
State Bank Continuous
Remittances
through legal
channel
3 Ease of doing business
Finance and interior
ministry
Continuous
Attracting FDI,
growth of local
industry
4
Decreasing Fiscal deficit
through austerity
measures
Government of
Pakistan
Continuous
Reducing burden
on Foreign loans
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19. Workable Solutions
S.# Action / Proposal
Responsible
Government
organization/depart
Time
Frame
Expected
Outcome
5
Curbing Hundiwala
system and illegal
outflow of wealth and
inflow of remittances
from Pakistan
FIA and other
specialized agencies
Continuous
Sending money
abroad and
remittances to
Pakistan through
legal channels
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Increasing Exports and
decreasing Imports
Ministry of Finance Continuous
Reducing Current
Account Deficit
(CAD)
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Registration of Large
manufacturing
companies to include
them into tax net
FBR Continuous
Increase of
taxation network
8 Promoting Tourism Tourism Department Continuous Inflow of Dollars
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22. Any Question?
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