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Pak economy heading towards hyperinflation – by Shaukat Masood Zafar

A hyperinflation is mainly caused when there is excessive, drastic growth in the supply of paper money. As the destruction of currency reaches its peak, hyperinflation happens. In Pakistan monetary and fiscal authorities are regularly issuing large quantities of money to pay for a large stream of government expenditures thus money in circulation is now much higher than the level of total output of the economy.

It has resulted in rapid fall of the purchasing power of our currency and the rise of prices of commodities, and its impact on the daily life of common people has been overwhelming. In fact, inflation is a form of taxation in which the government gains at the expense of those who hold money while its value is declining. Due to devaluation of currency and decrease in its value, the purchasing power of the people of Pakistan has reduced drastically.

In fact hyperinflation is considered to be a very large taxation scheme. Pakistan’s consumer price index, the indicator for inflation, has soared to the highest level in its history and has sparked high inflation pushing the interest rate hikes by the State Bank adversely affecting the investment and rate of employment.

There are several other causes that are triggering high inflation in Pakistan, including severe economic depression, aftermath of war on terror, imbalance between supply and demand, excessive money printing and rapid growth in the supply of money, Government of Pakistan is physically printing paper currency faster than the rate at which it is devaluing, absence/ non adherence of legal tender laws and price controls in Pakistan to prevent discounting the value of paper money relative to gold, silver, hard currency commodities, and lower growth in the output of goods and services.

Capitalism is also now being blamed for high inflation as it is fundamentally based on greed and is immoral; that it enables the rich to get richer at the expense of the poor; that free markets are the places where the most ruthless operators unfairly crush their smaller competitors and where the cost of vital products and services, such as food items, health care, education and energy are beyond the reach of those who need them; and that capitalism unchecked breeds corruption and encourages obscene bonuses, excessive pay packages and unwarranted golden parachutes.

Pakistan is a nation blessed with abundant human and natural resources. Despite all these Pakistani citizens suffer from widespread poverty; the economic output is low in both the private and the public sector due to corruption, wrong policies, inefficiency, erratic power supply, poor infrastructure and unrealistic policies. Pakistan is dependent on foreign loans despite earning billions through exports, remittances and having sufficient agricultural land, water and manpower. It reflects deeply flawed economic planning otherwise its economy can be sustained without foreign aid.

It is better for economy like Pakistan to set its performance targets not only in terms of low inflation rates but also in terms of human development, efficiency, productivity, and low exchange and interest rates. The problems of inefficiency, bribery and corruption, which characterize the public sector of the Pakistan economy, need to be addressed through effective measures.

There is a growing fear that with the surge in global growth, demand for food will increase, pushing food prices higher. Similarly, global growth will create more demand for oil, which would push oil prices higher. An average price of oil beyond dollar 80 per barrel will not be sustainable for our economy; the need for an oil hedging strategy is vital. Necessary steps need to be taken well in time in the light of these apprehensions.

Tax reduction to the Banks from 58 percent during 2001 to reduced rate of 35 percent during 2006 has mounted considerable pressure on the national exchequer. The banking sector being enjoying excellent market conditions; tax rate need to be at least restored at previous level simultaneously bringing the corporate sector at par with Banks.

The government’s policies should be devoted to ensuring that the following conditions are present in the economy: The rule of law is of paramount importance for a vibrant economy which may be ensured at all costs. Respect for property rights is also a critical part of the rule of law. Starting any legal business should be easy to do requiring no multiple licenses and procedures and the involvement of multiple government agencies.

A strong and stable currency achieves better in less time. Low tax rates on income, profits and capital gains foster more risk taking and higher growth, bringing about a richer economy with a higher standard of living…along with higher government revenues. A semi controlled economy can bring better results.

About the author

Abdul Nishapuri


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  • Dear Shaukat Masood Zafar,

    Your title seems to indicate that there is some catastrophe about to befall us, whereby we shall go into a free-fall that would create exorbitant increase in prices. I would define ‘Hyperinflation’ as a phenomenon where purchasing power of printed note becomes less valuable than the paper it is printed on. This phenomenon mostly occurs after there has been a highly catastrophic event – such as, say A world War in case of Germany and Japan – or a combination of economic restrictions such that a country becomes economically incapacitated- Examples being Zimbabwe or 1980s Argentina. This of course, thankfully, doesn’t look to be our fate. Yes there is inflation, but this has been steady and we have had this for years – reasons for it you innumerate quite eloquently. But it is not the case that our products have fully stopped being exported, whereby our deficit becomes uncontrollable. It is also not that no one in the Market is willing to Purchase PKR – yes the demand is low – because we have no tourism industry (a huge boost) and of course that our books are in red. But with this we face the fate of many other thirdworld countries and more specifically our own past!

    I however do agree with your suggestions – Fact that we are not going into Hyperinflation, doesn’t mean we mustn’t fix our economy.
    Pakistan, if we had any sense, can compete with India and other – so called adversaries, in only way and this is economically. It has taken some years for India to understand, but they have now a team in power that fully believes this mantra.

    You make two valuable observations: One being that we need to look at more human development. I would say, this, even more than inflation, is important – secondly that there is need for an engineered or semi-controlled, as you put it, economy – By this I mean we need to revisit the Public – Private divide. And re-establish what areas of economy the government must take over and reconstruct with sole purpose of serving the people

  • I totally agree with you because the daily events going on in Pakistan especially bomb blasting and target killing are synonymous with catastrophic events leading to persistent instability of the whole economy.No one is giving there attention to the well bieng of human.Now a days inflation is going on double digit leading towards the hyperinflation.

  • I do agree with the current situation of the economy of Pakistan and is very concern about. i think that working hard on agriculture, free education and free health facilities will boom oureconomy.

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