| Summary: |
Pakistan has experienced significant inflationary pressures in the course of her economic development. Although inflation was often repressed by Government controls, estimates based on free market prices existing alongside the controlled prices indicate that inflationary pressures have most of the time been quite significant. The price inflation has also been partly diverted towards the balance of payments pressure. Monetary expansion, caused by large deficit financing operations in the Government sector and bank financed development expenditures in the private sector, was often supplemented by substantial increases in income velocity. Nevertheless, monetary factors do not seem to have played as vital a role in generating the inflationary pressures as the structural factors like chronic food shortages and foreign exchange bottlenecks. Government's agricultural and commercial policies were greatly responsible for these shortages. Foreign economic aid and the P.L. 480 food imports relieved the general inflationary pressures considerably and played an important stabilizing role. Nevertheless, the pressure on prices and balance of payments has always been significant. Evidence shows that inflation has not given much support not to economic growth. Real savings and capital formation have/been so much encouraged by rising prices as by the availability of capital goods and raw materials. Profits have been mainly determined by the degree of competition rather than by the rising prices. On the whole, high rates of growth in the economy have been associated with low rates of inflation. On the other hand, inflation has distorted the distribution of real income. Real wages have often been adversely affected by the rising cost of living and the brunt of inflation has been borne mainly by the working classes whose wages have risen very reluctantly in the process of inflation due to high unemployment and abundant supply of labour. More stable economic growth in future would require sound agricultural development in future Plans and larger food supplies. Likewise, increased foreign exchange supplies both through exchange rate manipulations and foreign capital inflows together with relatively liberalized imports can ensure more efficient economic growth. Improvements in the fiscal and monetary management, lesser reliance on deficit finding and increased tax efforts would also be warranted in the interest of stable and efficient economic development.
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