User:19sirfan/sandbox/Pakistan: State of the Economy

Current Status

The current status of the state of the economy within Pakistan was taken with respect to 4 of the 5 major economic goals. Economic growth, economic equality, inflation, and unemployment. The position of these four economic goals should be low unemployment, low and stable rates of inflation, high economic growth, and high economic equality in an ideal scenario. Due to the unavailability of most information with regard to these goals, the years at which data was taken for is inconsistent and therefore a clear picture about the economies current state must be inferred.

The increase in quantity or quality of factors of productions shifts the possible production for both goods and services in Pakistan outwards. This means that the potential for economic growth also increases as, using this hypothetical, the number of goods and services provided increases from (S1, G1) to (S2, G2)

GDP

Currently, the GDP of Pakistan is on an incline, from 271 billion USD in 2015 to 283.7 billion USD in 2016. GDP growth has been positive AND increasing between years as well from 1.61% in 2011 to 5.47% in 2016. This is indicative of economic growth and its acceleration in a less developed nation such as Pakistan. There are multiple reasons for this growth. An increase in the quantity of factors of production, or rather increase in labor, has been one driving factor with the labor force on a constant increase from consisting of only 59.74 million people in 2013 to 60.10 million in 2014 to 61.04 million in 2015. Better quality of factors of production is another cause of this growing GDP. The literacy rate of all Pakistani's, for example, went up by 2% in the one year period between 2014 and 2015. This leaves less room for miscommunication and therefore a more efficient economy. This is great for the future of Pakistan as a high GDP increases standards of living and can lead to less unemployment. However this comes at the cost of depletion of natural resources and increased pollution. The government is currently looking to actively increase the GDP with the "Youth Business Loans Scheme" which is an initiative by the government made to reduce interest rates for anyone under 45 with promising ideas. A decrease in interest rates will increase aggregate demand in Pakistan as investments will rise since decreased interest rates incentive people to borrow. This leads to an increased national output if nothing else changes.

A representation of the demand-pull inflation which Pakistan seems to be currently facing. As aggregate demand increases from AD1 to AD2, the national output increases from G1 to G2 indicating economic growth. At the same time, average price levels also increase, from P1 to P2, indicating inflation.

Inflation

Inflation jumped astronomically in Pakistan in 2018. The core inflation rate, the long run trend in price levels which excludes volatile goods such as food and electricity, was at around 5.25 % in January when it jumped up to 7.00% in April. This is not the highest the country has seen in the 2010-2020 decade and is low compared to the 11.40% that 2012 brought along. However, this was the highest core inflation rate in the south - southeast Asia region during April 2018. A probable reason for this inflation may be the 2018 Pakistan general elections. During times of election, lots of money is spent by election candidates for marketing and other external costs. The government also spends money on providing voting centers and employees to go along with them. In 2013 alone 23.96 billion rupees, or around 200 million USD, was spent for the election. In Keynesian theory, this influx of government spending and consumption would shift the aggregate demand outwards and result in demand-pull inflation. Economic growth is also an effect of demand-pull inflation and since both national output and inflation are increasing, an increasing aggregate demand in the economy is the most likely scenario as of 2018. To counter inflation, the government is taking drastic measures and is supporting the devaluation of the rupee. This worked in the 1980's when Pakistan's currency depreciated by 90% in 6 years but inflation was able to be controlled.

The change in distribution of income in Pakistan. As you can see, the income equality is getting more equal through the decades as the distribution approaches the line of perfect equality.

Economic equity

Pakistan's economic equity can be measured through the Gini index. This number is a representation of how wealth is distributed across the entire country. 0 represents perfect income equality and 100 represents perfect income inequality. Pakistan had an index of 30.70 in 2013, which is a -0.65% change from 30.90 in 2011. This isn't too big of change so 30 is a good estimate as to where it may be today. This makes it one of the most equal countries in the world. The recent changes in equity have cut the income which the top 20% own and redistributed it to the middle class. For example, in 2012 the top 20% saw 40.70% of the countries income but that was cut down in 2013 to 40.30% and distributed to a middle class who's income accounted for 16.10% of the total countries income in 2012 but 16.40% in 2013. A huge problem regarding income equality in Pakistan is income disparity between genders. In 2017, it was ranked 143 out of 144 in terms of Economic Participation and Opportunity, with 1 being the most egalitarian society on earth. To better this, special budget allocations have been made for a women's empowerment package so that women who aren't getting payed fairly do get their shares worth.

Unemployment

The unemployment rate in Pakistan has stayed about equal and the 6.0% unemployment present in 2014 has barely dipped to 5.9% in 2015. There is a discrepancy between rural and urban unemployment rates though and urban unemployment is a fairly high 8.0%. This may be due to the rising automation in the country which has led to unskilled workers being replaced by machines, a form of structural unemployment. The government has already taken action and is providing a "Youth Skills Development Program." This program is launched towards unskilled or low skilled youths across the country who are unemployed and over 20000 trainees passed the program back in 2015. The program still exists today and in 2017 the program was applicable to anyone under 35 years of age. This program helps train unskilled laborers and is supposed to try to reduce the structural unemployment within Pakistan by providing the skills required for new work within the country.

An increase in aggregate supply would shift the aggregate supply curve outwards from AS1 to AS2. This results in the new equilibrium point having a higher national outpout (from G1 to G2) all while reducing average price levels by P1-P2.

Future Solution

Even though Pakistan is heading towards a brighter future than the past it came from, there is still much to be improved. Proposals, such as multiple women's rights packages and skills development programs are guided to bring more income equality and reduce unemployment in the country. However, since most of the population is relatively poor, inflation is a huge threat. Shutting that down may be more in the favor of the people than anything else. One way to do this is by increasing the aggregate supply in the economy. Reducing costs of energy is one method of doing so and given that nearly 60% of the country's imports are fuel based, creating local energy plants on cheap fuel sources such as solar/hydro energy should be the governments next plan of action. This will allow firms to produce more goods because their costs of production will decrease. A decrease in costs of production will increase aggregate supply, leading the new equilibrium point on a macroeconomic diagram to have lower average price levels while increasing national output. A win-win situation in terms of the macro economy. This would cost millions though and this money could be more easily used to create smaller scale projects such as providing better free services like healthcare and education.

External links

• data.worldbank.org

MLA Citations

Ahmed, Naved. “Forced Devaluation of Rupee: a Recipe for Disaster.” Dawn, Scribe Publishing Platform, 4 Nov. 2017, www.dawn.com/news/1367119.

Bhatti, Arshad. “Elections 2013 to Cost Rs 23.96b.” The Nation, Nawaiwaqt Group, 11 May 2013, nation.com.pk/11-May-2013/elections-2013-to-cost-rs-23-96b.

“COUNTRY COMPARISON :: DISTRIBUTION OF FAMILY INCOME - GINI INDEX.” Central Intelligence Agency, Central Intelligence Agency, www.cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html.

Education. Ministry of Finance, Government of Pakistan, 2016, Education, www.finance.gov.pk/survey/chapters_16/10_Education.pdf.

The Global Gender Gap Report: 2017. World Economic Forum, 2017.

IndraStra Global. “Pakistan Depreciates Its Currency, Adjusting to Economic Pressures.” IndraStra , IndraStra Global, 9 Dec. 2017, www.indrastra.com/2017/12/Pakistan-Depreciates-its-Currency-003-12-2017-0008.html.

“Pakistan - Core Inflation Rate.” Ieconomics, Apr. 2018, ieconomics.com/pakistan-core-inflation-rate.

“Pakistan Real GDP Growth Rate.” Ceicdata, 2017, www.ceicdata.com/en/indicator/pakistan/real-gdp-growth.

Population, Labor Force and Unemployment. Ministry of Finance, Government of Pakistan, 2016, Population, Labor Force and Unemployment, www.finance.gov.pk/survey/chapters_16/12_Population.pdf.

“Prime Minister's Youth Business Loan Scheme.” Prime Minister Youth Program | Prime Minister Youth Program, youth.pmo.gov.pk/Youth-Business-Loan-Scheme.php.

Rehman, Shafiqur. “Renewable and Sustainable Energy Reviews.” National Energy Scenario of Pakistan –Current Status, Future Alternatives,and Institutional Infrastructure: An Overview, 23 Oct. 2017, pp. 159–160., www.researchgate.net/publication/310457522_National_energy_scenario_of_Pakistan_-_Current_status_future_alternatives_and_institutional_infrastructure_An_overview.