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The Periods of Stagflation, also known as Stagflation in Pakistan or inflation and unemployment in Pakistan, are periods of economic
stagflation In economics, stagflation or recession-inflation is a situation in which the inflation rate is high or increasing, the economic growth rate slows, and unemployment remains steadily high. It presents a dilemma for economic policy, since actions ...
in Pakistan's
economic history Economic history is the academic learning of economies or economic events of the past. Research is conducted using a combination of historical methods, statistical methods and the application of economic theory to historical situations and inst ...
, which has affected Pakistan's economic trajectory since its inception. The first period of stagflation began in the 1970s after the secession of
East Pakistan East Pakistan was a Pakistani province established in 1955 by the One Unit Scheme, One Unit Policy, renaming the province as such from East Bengal, which, in modern times, is split between India and Bangladesh. Its land borders were with India ...
and the formation of
Bangladesh Bangladesh (}, ), officially the People's Republic of Bangladesh, is a country in South Asia. It is the eighth-most populous country in the world, with a population exceeding 165 million people in an area of . Bangladesh is among the mos ...
following the
surrender Surrender may refer to: * Surrender (law), the early relinquishment of a tenancy * Surrender (military), the relinquishment of territory, combatants, facilities, or armaments to another power Film and television * ''Surrender'' (1927 film), an ...
during the
Bangladesh Liberation War The Bangladesh Liberation War ( bn, মুক্তিযুদ্ধ, , also known as the Bangladesh War of Independence, or simply the Liberation War in Bangladesh) was a revolution and War, armed conflict sparked by the rise of the Benga ...
. Although the government of
Zulfikar Ali Bhutto Zulfikar (or Zulfiqar) Ali Bhutto ( ur, , sd, ذوالفقار علي ڀٽو; 5 January 1928 – 4 April 1979), also known as Quaid-e-Awam ("the People's Leader"), was a Pakistani barrister, politician and statesman who served as the fourt ...
made an attempt to end this period, it was subsequently ended by the
military government A military government is generally any form of government that is administered by military forces, whether or not this government is legal under the laws of the jurisdiction at issue, and whether this government is formed by natives or by an occup ...
of Zia-ul-Haq in the 1980s. The end of Soviet engagement in
Afghanistan Afghanistan, officially the Islamic Emirate of Afghanistan,; prs, امارت اسلامی افغانستان is a landlocked country located at the crossroads of Central Asia and South Asia. Referred to as the Heart of Asia, it is bordere ...
and increasing U.S. aid to Pakistan facilitated a second period of stagflation in the 1990s. During this period, both
Benazir Bhutto Benazir Bhutto ( ur, بینظیر بُھٹو; sd, بينظير ڀُٽو; Urdu ; 21 June 1953 – 27 December 2007) was a Pakistani politician who served as the 11th and 13th prime minister of Pakistan from 1988 to 1990 and again from 1993 t ...
and
Nawaz Sharif Mian Muhammad Nawaz Sharif (Urdu, Punjabi: ; born 25 December 1949) is a Pakistani businessman and politician who has served as the Prime Minister of Pakistan for three non-consecutive terms. He is the longest-serving prime minister of Pak ...
attempted to tackle stagflation, with Nawaz Sharif first implementing
economic liberalization Economic liberalization (or economic liberalisation) is the lessening of government regulations and restrictions in an economy in exchange for greater participation by private entities. In politics, the doctrine is associated with classical libe ...
and
privatization Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...
. The second period was ended by
Shaukat Aziz Shaukat Aziz ( ur, ; born 6 March 1949) is a Pakistani former banker and financier who served as 17th prime minister of Pakistan from 28 August 2004 to 15 November 2007, as well as the finance minister of Pakistan from 6 November 1999 to 15 ...
's government who implemented much tougher taxation, monetary and financial development policies in the 2000s. After Aziz's reforms, the third period came about after the 2008 elections and widespread
militancy The English word ''militant'' is both an adjective and a noun, and it is generally used to mean vigorously active, combative and/or aggressive, especially in support of a cause, as in "militant reformers". It comes from the 15th century Latin ...
in North-West Pakistan, in addition to the
global financial crisis Global means of or referring to a globe and may also refer to: Entertainment * ''Global'' (Paul van Dyk album), 2003 * ''Global'' (Bunji Garlin album), 2007 * ''Global'' (Humanoid album), 1989 * ''Global'' (Todd Rundgren album), 2015 * Bruno ...
. Pakistan's leading economists and financial scholars are uncertain to the causes of stagflation, and many attribute this period to several factors including the state's role in war on terror, corruption, tough monetary policies and several other factors.
Yousaf Raza Gillani Yusuf Raza Gilani (Urdu: ; born 9 June 1952), is a Pakistani politician who served as 18th Prime Minister of Pakistan from 25 March 2008, until his retroactive disqualification and ouster by the Supreme Court of Pakistan on 26 April 2012. He ...
,
Prime Minister of Pakistan The prime minister of Pakistan ( ur, , romanized: Wazīr ē Aʿẓam , ) is the head of government of the Islamic Republic of Pakistan. Executive authority is vested in the prime minister and his chosen cabinet, despite the president of Pakis ...
from 2008–2012, is held responsible for doing too little to improve the economic situation. The leading financial critics points out that Gillani's government carried out no major economic reforms to encourage economic development and the few policy measures and reforms were either very modest or collapsed due to opposition from his party's leadership.


Historical analysis


First period of stagflation

Yasmeen Niaz Mohiuddin, the author of ''Pakistan: A Global Studies Handbook'', points out that East-Pakistan had provided employment and market of ~50% of West Pakistan's goods and materials before the 1970s. The civil war had shattered the economy; the captive markets, employments, and industrial attraction in East Pakistan was lost, and the industrial production in the country came to halt. Bhutto's government faced with many difficult problems experienced by Pakistan's economy including the low productivity combined with a high rate of monetary in circulation. As response to this, Bhutto
devalued In macroeconomics and modern monetary policy, a devaluation is an official lowering of the value of a country's currency within a fixed exchange-rate system, in which a monetary authority formally sets a lower exchange rate of the national curre ...
the
national currency Fiat money (from la, fiat, "let it be done") is a type of currency that is not backed by any commodity such as gold or silver. It is typically designated by the issuing government to be legal tender. Throughout history, fiat money was sometime ...
and announced the new labour policy at an instance. The first attempt was to establish a command and control economy to revitalize the stagnant economy and introduced the nationalization programme which nationalized entire private industrial corporations under government-ownership management which was devolved into a substantial state-sector. Bhutto cancelled the planned economic system and focused on intensifying government control of private business industries.
Zulfikar Ali Bhutto Zulfikar (or Zulfiqar) Ali Bhutto ( ur, , sd, ذوالفقار علي ڀٽو; 5 January 1928 – 4 April 1979), also known as Quaid-e-Awam ("the People's Leader"), was a Pakistani barrister, politician and statesman who served as the fourt ...
's government replaced economic planning and institutionalized competence by appointing highly qualified personnel who took an ad hoc approach to planning the new economic system. The recommendations of the Planning Commission were bypassed and economic planning became more politicized after 1974. The Nationalization programme brought a bad juncture and severe the reputation of
Pakistan Peoples Party The Pakistan People's Party ( ur, , ; PPP) is a centre-left, social-democratic political party in Pakistan. It is currently the third largest party in the National Assembly and second largest in the Senate of Pakistan. The party was founded i ...
. The heavy mechanical industries were insufficiently overstaffed and failed to produce the effective productivity, with accumulated loss of ₨.254
million One million (1,000,000), or one thousand thousand, is the natural number following 999,999 and preceding 1,000,001. The word is derived from the early Italian ''millione'' (''milione'' in modern Italian), from ''mille'', "thousand", plus the au ...
. According to the studies of Mohiuddin, the mechanical and machine building industries had employed surplus workers by PPP for various political reasons, which led the sharp decrease in productivity and increase in dead weight losses. However, not everything was stagflated, some industrial corporation, particularly in cement, petroleum, and fertilizers made profits, others endured with heavy losses. By the end of 1977, Bhutto's economic policy measure programme produced an inevitable huge losses; high budget deficits; high unemployment and fall of GDP growth rate; and an excess of high government expenditures over revenues and inflation. Bhutto had won the popularity on economic and social justice, but studies shows that income distribution had worsened under his government. Mohiuddin pointed out that the Gini coefficient was increased by nearly ~22.0% in rural areas and ~10.0% in urban areas. The Gini coefficient was increased from 0.231 in 1972 to ~0.263—0.355 in 1979-80 in the country. The inflation and unemployment increased to 16.0% in the 1970s in contrast to 5.0% in the 1960s. The controversial and poorly studied financial policies and political resentment led the dismissal of Zulfikar Ali Bhutto in 1977 and was subsequent executed in 1979.


Second period of stagflation

As an aftermath of the 1990 general elections, the right-wing conservatives under the leadership of
Nawaz Sharif Mian Muhammad Nawaz Sharif (Urdu, Punjabi: ; born 25 December 1949) is a Pakistani businessman and politician who has served as the Prime Minister of Pakistan for three non-consecutive terms. He is the longest-serving prime minister of Pak ...
came to the power for the first time in the history of Pakistan. Nawaz Sharif strike the stagflation with full force after forcefully implementing the
privatization Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...
and
economic liberalization Economic liberalization (or economic liberalisation) is the lessening of government regulations and restrictions in an economy in exchange for greater participation by private entities. In politics, the doctrine is associated with classical libe ...
programmes. The stagflation was temporarily ended in the country. However, Sharif's programmes were widely criticized by
Pakistan Peoples Party The Pakistan People's Party ( ur, , ; PPP) is a centre-left, social-democratic political party in Pakistan. It is currently the third largest party in the National Assembly and second largest in the Senate of Pakistan. The party was founded i ...
in state media and the growth did not contain the sustainability. The privatization programme under the economic liberalisation programme came with largely surrounded controversies and reckless by Nawaz Sharif to implement his programme. According to the Pakistan Peoples Party, Nawaz Sharif's government arbitrarily fixing the reference prices of the (privatized) state units and ignoring those suggested by the evaluations; though,
Sartaj Aziz Sartaj Aziz ( ur, ; born 7 February 1929) is a Pakistani economist and a strategist, having previously served as the deputy chairman of the Planning Commission of Pakistan, member of the federal cabinet as the ''de facto'' Minister for Fore ...
strongly dismissed the claims. In an article, "''The curse of stagflation''", Aziz posthumously blamed the second government of Pakistan Peoples Party, and pointed out the failure of the planned economic system of Benazir Bhutto. In the Eighth Plan, Benazir Bhutto, assisted by her financial advisers at the Finance ministry set target to achieve 6.9% for the GDP growth by 1995, but eventually the GDP Growth rate lowered to 5.3% and ended up at 4.30%. The stagflation generally affected the industrial growth target which was aimed to achieve 7%, but "suffered a serious shortfall in its productivity and instead the industrial growth ends up at the 5.0%, with many industrial firms and factories were forced to closed down, adding to the ranks of the unemployed." The country's stock markets saw the sharpest fall in the history of the country, and its value of shares falls to 40.0%, with total loss of ₨.170 billion to national and foreign investors. Constant economic pressure and failure of the planned economy led the dismissal from power of Benazir Bhutto in 1996 when she failed to materialize her and the relatively poor economic growth. By the 1996, the economic GDP growth had reached to 1.70%See the graph for the GDP Growth Rate: (lowest growth since 1970) and the rate of inflation had risen to 10.79% (highest since 1991). After returning to power with heavy margins, Nawaz Sharif made several attempts to end the stagflation in the country. Overall, the conditions had been worsened and a year after being elected, Sharif ordered the nuclear tests in a response to India's nuclear aggression. Despite the Asian financial crises in 1997 and Russian financial crises in 1998, and amid
economic sanctions Economic sanctions are commercial and financial penalties applied by one or more countries against a targeted self-governing state, group, or individual. Economic sanctions are not necessarily imposed because of economic circumstances—they may ...
in the wake of nuclear tests, the foreign exchange increased to $1.5 billion, the stock market improved and inflation was contained at 3.5% as opposed to 7% in 1993-96. Sharif's second government restored the GDP growth to 3.49% in 1997, tough inflation remains high at 11.80%. Little progress was made by Sharif in 1998, and his reforms only leveled up the GDP growth to 4.19%, while retaining the inflation and unemployment at 7.8%. However, Sharif's reform suffered a major set back in 1999 when the country began militarily involved with India in two occasions, which led the dismissal of his government in 1999. By the time Sharif was dismissed the GDP remains at ~3.19%, though the unemployment and inflation rate decreases down to 2%, and was at 5.74%.


Reassessment and development


Policies and enforcement

In 1999, Sharif was dismissed in a
military coup d'état A military, also known collectively as armed forces, is a heavily armed, highly organized force primarily intended for warfare. It is typically authorized and maintained by a sovereign state, with its members identifiable by their distinct ...
led by chairman joint chiefs general
Pervez Musharraf General Pervez Musharraf ( ur, , Parvez Muśharraf; born 11 August 1943) is a former Pakistani politician and four-star general of the Pakistan Army who became the tenth president of Pakistan after the successful military takeover of the ...
and without wasting any time, the new military government brought a role of
Shaukat Aziz Shaukat Aziz ( ur, ; born 6 March 1949) is a Pakistani former banker and financier who served as 17th prime minister of Pakistan from 28 August 2004 to 15 November 2007, as well as the finance minister of Pakistan from 6 November 1999 to 15 ...
. At the very beginning the economic slowdown and crises was acknowledge by the new government and Musharraf installed another system known as "Broad-based strategy." The military government wanted a quick economic turnaround and for that purpose, Aziz was brought up to national politics. The planned economic system was disbanded by Aziz and replaced with a new system known as " Medium Term Development Framework" in 1999. There was a ~70% declining in the national economy with the loss of $150 million (1999) to $600 million (2000), which constituted 0.21% of FDI global flow. Aziz took initiatives for
Foreign direct investment A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct c ...
(FDI) offering incentives to foreign investors with his
macroeconomic Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole. For example, using interest rates, taxes, an ...
policies, taxation framework and a consistent investment policy. The implementation and enforcement of economic liberalisation and privatization programmes led the boom the economy, which subsequently ended the stagflation era, and for the first time since 1984, the GDP growth had reached to 9.0%— one of the highest in the world.


Economic decay and responsive measures


Third era of stagflation

The economic performance and growth dramatically decayed after the 2008 general elections and the wide spread militancy in Western Pakistan. President
Pervez Musharraf General Pervez Musharraf ( ur, , Parvez Muśharraf; born 11 August 1943) is a former Pakistani politician and four-star general of the Pakistan Army who became the tenth president of Pakistan after the successful military takeover of the ...
was forced to step down by a
collective leadership A collective is a group of entities that share or are motivated by at least one common issue or interest, or work together to achieve a common objective. Collectives can differ from cooperatives in that they are not necessarily focused upon an ...
led by
Yousaf Raza Gillani Yusuf Raza Gilani (Urdu: ; born 9 June 1952), is a Pakistani politician who served as 18th Prime Minister of Pakistan from 25 March 2008, until his retroactive disqualification and ouster by the Supreme Court of Pakistan on 26 April 2012. He ...
and Asfandiar Vali. To counter Musharraf's legitimacy, Gillani and his collective leadership developed the idea to uplift
suspension Suspension or suspended may refer to: Science and engineering * Suspension (topology), in mathematics * Suspension (dynamical systems), in mathematics * Suspension of a ring, in mathematics * Suspension (chemistry), small solid particles suspen ...
and restore the Justice Iftikhar Chaudhry as country's chief justice. Musharraf's dismissal led the establishment of more socialist and leftist (although nationalist as well) (soviet oriented) collective leadership-style government; the share of the government was distributed in among the leadership of MQM, ANP, JUI and PML(Q). The new politically dominated collective leadership government led by Prime minister Yousaf Raza Gillani had first struggle to appoint capable finance ministers, and dramatically ousted two Finance ministers of the country. Temporarily, the charge of restoration of the national economy was given to
Hina Rabbani Khar Hina Rabbani Khar (Urdu: ; born 19 November 1977) is a Pakistani politician, who is serving as the Minister of State for Foreign Affairs since 19 April 2022. She was previously appointed in July 2011 as the Foreign Minister of Pakistan at the ...
who made partial success on presenting the federal budget. During the
financial crisis of 2007–2008 Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
, growth in Pakistan halted the abruptly and stalled for a longer period than any other states in the
South Asia South Asia is the southern subregion of Asia, which is defined in both geographical and ethno-cultural terms. The region consists of the countries of Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.;;;;;;; ...
, causing the economy first becoming stagnant. Under the presiding rule of Gillani, the state currency value of the Rupee (₨.) crashed from 60-1 USD to 80-1 USD in only a month, the prices of commodities soared through the roof, the number of people living below poverty line increased from 60 million to 77 million. The country's
working class The working class (or labouring class) comprises those engaged in manual-labour occupations or industrial work, who are remunerated via waged or salaried contracts. Working-class occupations (see also " Designation of workers by collar colo ...
(which dominated the population of the country) became virtually deprived from basic necessities and natural resources, notably the food, water and electricity. According to the
Gulf News ''Gulf News'' is a daily English language newspaper published from Dubai, United Arab Emirates. It was first launched in 1978, and is currently distributed throughout the UAE and also in other Persian Gulf Countries. Its online edition was lau ...
, the stagflation hit the poor and working class very hard, the key voter of the ruling party, Pakistan Peoples Party. The nationwide floods wiped out the 20% of the economic infrastructure in the country and the economic development initiated by private sector was curbed to ~2.5%, resulting the billion dollar worth of loss of private sector. In a less intensified nationalization programme, there was a massive hiring of unskilled and less-trained working class labour, on a political basis, which slowed down the technological productivity and halted the overall social, political, economical growth. Experts views this problem as this problem also reduced the Gillani's government ability to earn adequate revenues foreign exchange, keeping fiscal and external balances perpetually under pressure. According to ''Pakistaniaat'', the inflation rate of prices of goods and services in an economy rise over a period of time. This is due to economic mismanagement of highest order, notably at the government which was presided by Gillani. The Shaukat Aziz era, which had begun with high growth, inherited the government to Yousaf Raza Gillani, began to stagnant and stagflated in 2008. In 2012, just months before being ousted by
Supreme Court A supreme court is the highest court within the hierarchy of courts in most legal jurisdictions. Other descriptions for such courts include court of last resort, apex court, and high (or final) court of appeal. Broadly speaking, the decisions of ...
, Gillani presented the last of five federal budget which Gillani admitted the country's economy was facing the period of stagflation. The fifth budget is an attempt to counter the stagflation by enhancing the salaries of the government and party officials and members; but the rising inflation has already eroded the incomes more than they are likely to get. The experts believed that the government is not in any position to give any relief to the masses, as the government is s facing multifaceted crisis.


Reasoning and causes

Reasoning with the stagflation, the ''Pakistan Today'' wrote that the Gilani's government "had upset the balance between the private and public sector, when the government resorts to massive employment in the public sector on political basis, badly affecting its profitability." The ''Pakistan Today'' reasoned that more than ~48% unskilled and blue collar workers were absorbed in the private-sector industries after the government-management ownership which was engaged in agriculture; thus resulted in a decline of productivity and labour discipline. Though, the specialists and economists remains unclear what key factor causes the stagflation, the many multiple factors can be attributed; on the other hand, the key media political specialists and economics writers, including the independent and neutral organization, such as
Transparency International Transparency International e.V. (TI) is a German registered association founded in 1993 by former employees of the World Bank. Based in Berlin, its nonprofit and non-governmental purpose is to take action to combat global corruption with civil ...
, posthumously blamed Yousaf Raza Gillani for doing too little to improve the economic situation. Throughout his democratic rule, no major reforms were initiated and the corruption, tax evasion, and the bad governance are likely to be modest factors to cause the stagflation. In 2012, the Pakistan Institute of Development Economics (PIDE) vice-chairman Dr. Rashid Amjad claims that, "the fiscal and financial constraints are hampering the capacity for investment and growth and the Finance ministry are reluctant to support rapid development of deeper debt markets." Ahmad further endorsed and maintained that, "a major cause of continuing stagflation in Pakistan was lack of Gilani's policy coordination between fiscal and monetary authorities." One factor may involved in the stagflation is attributed to the mathematical calculation performed by PIDE, that points out that the "nation's currency in circulation as a percentage of total deposits is 31%, which is very high as compared to neighboring India". Under Gillani's presiding of the country, nearly ~40.0% of the population fell under the line of poverty, with 16.0% rise in the inflation during his four years of presiding over the country. The new strict and tight monetary policy could not tame the soaring inflation, it did stagnate the economic growth. One economist maintained that stagflation took place when the tight monetary policy did not encourage the strong
private sector The private sector is the part of the economy, sometimes referred to as the citizen sector, which is owned by private groups, usually as a means of establishment for profit or non profit, rather than being owned by the government. Employment The p ...
to play a key part in growth. Analyzing the stagflation problem, the PIDE observed that a major cause of continuous era of stagflation in Pakistan was lack of coordination between fiscal and monetary authorities.


See also

*
Benazir Bhutto Benazir Bhutto ( ur, بینظیر بُھٹو; sd, بينظير ڀُٽو; Urdu ; 21 June 1953 – 27 December 2007) was a Pakistani politician who served as the 11th and 13th prime minister of Pakistan from 1988 to 1990 and again from 1993 t ...
* History of Pakistan since 1971 *
Post–World War II economic expansion The post–World War II economic expansion, also known as the postwar economic boom or the Golden Age of Capitalism, was a broad period of worldwide economic expansion beginning after World War II and ending with the 1973–1975 recession. The U ...


Scholarly notes and references

{{Economy of Pakistan Economic history of Pakistan 1970s economic history Economy of Pakistan Government of Yousaf Raza Gillani Nawaz Sharif administration Government of Benazir Bhutto Economic collapses Government of Zulfikar Ali Bhutto