Stagflation is often described as a “silent killer” because whilst inflation exaggerates the cost of living, the slow economic growth does not keep pace, decreasing the purchasing power of the common man. This trifecta of economic issues creates a vicious cycle that is difficult to address with conventional economic policies. Pakistan is enduring a persistent dilemma characterized by stagflation, an economic cycle which includes high inflation followed by low economic growth. It possesses a significant challenge to economic policy makers and businesses with wide impacts on the population.

Major contributors to stagflation include sluggish growth, unemployment woes, high inflation rates, and many other supply-side constraints. Energy shortages and lack of accessibility to adequate resources also play a vital role in this regard.

According to FY 2024, economic growth projections have been revised downward, hovering over an estimate of 1.5%-2% while major sectors keep struggling with energy shortages. Inflation has been persistently high , as if exceeding 30% at the end of year 2024. High inflation erodes the value of currency, making exports more expensive and imports cheaper. The Pakistani rupee has weakened significantly against the US dollar, increasing the trade imbalances. It has led to higher import prices, further driving inflation. In response to inflation, the State Bank of Pakistan (SBP) has increased interest rates to around 22%-23%. But doing so in a stagnating economy can lead to further unemployment .

Stagflation and economic growth........

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