Re: Economic growth question
Who are you? Bharati &imp distributing baarphi?
Say if you have something to say, or keep your chup chup (quiet)!
Re: Economic growth question
Govt kia ghaas kha rahee hei? Don’t they see all this monopoly and profiteering? Isn’t this a crime?
Pakistanis are becoming people who go by: “see no evil, hear no evil.”
Re: Economic growth question
Govt is eating ghaas (grass) that happens to be a leftie weed.
Our leftie policies in economic sphere have done so much harm to our country. These show-shaw-list socialist policies saw their peak in Bhutto’s nationalization fiasco.
However even when Bhutto is long gone, we are still using "price committees" to "control prices". Our policy makers do not realize that price committees ultimately end up strengthening monopolies instead of breaking them.
The second aspect of monopoly is the role of government in "feeding" people. By holding petrol, electricity, and natural gas in government control has created a source of corruption, inefficiencies, and lack of customer service.
As long as we as a nation are wedded to the leftie ideas of supply-chain, we are doomed to suffer from run away inflation.
Re: Economic growth question
Inflation: is based on supply & demand.
If supply is limited (actual or hoarding) - then demand becomes high = people are prepared to pay more and prices rise.,
Thats why prices of real estate rise (because it's almost fixed) whereas population keeps increasing. The more the population, the more the demand.
This is a very simple model - and I am sure a lot of other factors come into play-and economists can find a way to reduce inflation. The people who are hurt most in inflation are ther people who have saved all their life in cash.-Their money in old age cannot buy as much anymore.
Re: Economic growth question
ramyssysIX:
No, inflation does not have to rise for economic progress. Saying that, usually moderate inflation is need of economical growth and world price adjustment, thus it is desirable. Without moderate inflation, economy can easily get into recession that is undesirable for a poor but growing country like Pakistan.
Let me explain you something about economy (from what I understand), as I believe many are confused about how GDP worked out, what is the effect of inflation and from where the figures come.
Aka mail also mentions about this inflation phenomenon and seems worried about high inflation that can effect GDP figure.
Well, Inflation is integral part of GDP and one cannot take it out of GDP. No country can take inflation out of GDP figures neither any country does, nor is there such international norm about it.
For instance, Pakistan per capita income for the year 2005-2006 is 847 dollars. Where, 847 dollars includes real per capita increase plus increase due to inflation. Similarly, if you will see Pakistan GDP or GNP figures, it would include inflation (it is same for any country).
When a country declares GDP growth rate, they declare real GDP growth rate (that excludes effects of inflation) as GDP growth rate is performance measurement, not GDP measurement. GDP measurement is not performance measurement but state of the economy at current prices (and thus includes effects of inflation).
Country measure and declares GDP in local currency. Thus, if country has high inflation, GDP figures would show tremendous growth in local currency. Currency of a country with high inflation gets devalued and thus, in dollar terms GDP would not show tremendous growth. (USA also has inflation and that gets reflected in value of dollar).
High inflation, High growth rate and appreciating currency would show huge increases of GDP in dollars. Low inflation, Low growth rate and depreciating currency would show declining GDP in dollars. Normally, there is mixture of inflation, growth rate and value of currency that determines GDP in dollars.
Example:
If growth rate is zero: high inflation would result in depreciating currency. GDP would increase in local currency but it would decrease in dollars due to depreciating of currency.
If growth rate is zero to moderate: high inflation along with growth would affect exchange rate in such a way that GDP in dollar would show slight increase though in local currency there would be substantial increase.
If growth rate is moderate to high then high inflation along with growth would affect exchange rate in such a way that GDP would have high increase in local currency as well as in dollars.
GDP in rupees and dollars: Pakistan official GDP is always in rupees. To convert GDP in dollars, there are few methods. One is to convert taking average exchange rate for the year. Another method is Atlas method (used by World Bank) that takes average exchange rate spread over last three years to convert GDP to dollars. Then there is PPP that uses exchange rate taking into account differences in USA prices and prices in Pakistan. Actually, PPP figures are hugely distorted and bias, as in most cases, prices are not properly measured (its long story to get into).
All international institutions (including World Bank, IMF, CIA, EIU or any institutions) uses data in rupees coming officially from Pakistan, then they convert that data to dollar for publishing. Thus, the most reliable data regarding GDP or per capita income is data that comes officially from the country in local currency.
All western countries GDP figures are inflated figures (due to inflation or over valuation of their currencies). Thus, if third world country (like Pakistan) develops fast, their dollar GDP would increase substantially and in three ways. Growth and inflation would substantially increase the GDP in rupee and further it is possible that rupee appreciates against the dollar, giving further boost to the GDP in dollars.
Just think of the price differences between western world and Pakistan. You will realize that lot of inflation is needed to bring Pakistan prices same as prices in western world. If Pakistan GDP keeps increasing fast, price increases in dollar has to happen gradually to converge the prices. It can happen in two ways, one is inflation and other is appreciation of rupees.
Government may not like to see appreciation of rupee as it effects economical growth and international trade. Faster economical growth and especially better international trade would demand converging prices in Pakistan and western world. Government cannot stop that converging of prices but they can stop rupees appreciating. It is easier to stop rupee appreciating by accumulating reserves but to stop rupee to depreciate is difficult as it would need selling a lot of foreign reserves (if country has one). Fortunately, Pakistan at present does not need to support depreciating currency.
**ramyssysIX: **
Is inflation in Pakistan too high at present? It depends on how you look at it. Actually, I do not think that it is too high as in past we use to have huge inflation without any economical growth. I would consider inflation too high if Pakistan growth rate goes down and rupees start devaluing in big way. As long as Pakistan rupee is holding ground against world currencies, I think that inflation is not that high.
Increase in bus fare is understandable. Price of petrol is increasing and thus, transport cost has to go up. I do not know what percentage that cost gone up but Rs 200 does not look a lot. We should realize that cost of petrol is same all over the world and Pakistan pays same price what others are paying.
There could be many reasons and that reasons apply to all essential items (so apply it to any item you think).
Rupee is not depreciating and economy is growing fast, then the above situation is obvious. It only means that people have become affluent and increasing their meat consumption, increasing demand for meat that supply cannot cope with. If such price rise (78 percent over 5 years) was not due to increase demand but high inflation then one could have seen its effect on other figures, for instance one would have seen rupees depreciating, low growth rate, stagnant export/import, dead stock market, increasing interest rate, stagnant consumptions of other goods, ….. etc. Thus, this rise is surely due to increase in demand that production cannot cope.
As for petrol prices, that is obvious too. Oil price per barrel has gone up many folds during last many years. Thus, 75 percent increase (from 33 to 58) is not that unexpected rise.
Well, I think that before budget, minimum wage was around Rs 3000 and thus increase to Rs 5000 is increase of around 66 percent. What I remember, there was four times when wages has increased in last 7 years. I agree that it is not a big wage but then, those that were living on Rs 3000 before the budget, Rs 2000 increase is big wage increase.
One should realize that government does not have unlimited supply of money. Their money supply is what they get in taxes and what they can borrow (Pakistan with 160 million people has around 1.5 million taxpayers and collects 65 to 70 percent taxes from one city alone, Karachi). What they borrow, they have to pay huge interest on that (be that borrowing is in rupees or dollars). That interest payments also comes from taxes or further borrowing.
There was time (during 1990s) when Pakistan government was having difficulty in even borrowing, as no one wanted to give loan to a bankrupt country like Pakistan. In such situation, Pakistan use to go to lenders borrowing at very high interest rate. NS and BB were borrowing dollars at interest rate of over 13 percent and rupees at over 18 percent. Now Pakistan borrows dollars at less then 5 percent and rupees at less then 10 percent.
As for federal tax collection, it was 308 billion rupees (1998-1999) and for year 2005-2006, expectation is of around 710 billion rupees. Per capita income has also increased around 100 percent. Pakistan federal tax collection figure over last few years:
http://www.sbp.gov.pk/ecodata/tax.pdf
After giving so much relaxation in tax, if Pakistan is collecting 225 percent more tax then 7 years ago (without much increase in number of tax payers) and per capita income has also increased substantially, I believe that average people earning must have gone up by around 100 percent over last 7 years. I think that average price over last 7 years has increased less then 45 percent, so I think that there should not be problem other then people never get satisfied. Pakistan price increases (for basket of goods) over last few years:
Re: Economic growth question
Dear Saleem, I am talking of Real GDP growth rate not Nominal GDP growth rate. In Real GDP growth rate inflation is not included because prices are measured according to some base year. When news reports talks of India growing 7% and China growing 9% or Pakistan growing 7% they are talking of Real GDP growth rate which discounts inflation. Inflation is only included in Nominal GDP growth rate.