Inflation is the general fluctuation in the purchasing value of money it can be either increased or decreased. When the rate is decreased it becomes deflation. Inflation usually lightens up the fact that it results in the reduction of purchasing power per unit of money which means with each unit of money only a fewer number of goods and services can be consumed. Inflation in simple words is the increase in general price level of goods and services in an economy over a period of time.

This study is about the effects of inflation and trade deficit on the economic growth of Pakistan. The main objective of every country is to achieve a sustainable rapid growth. High imports by Pakistan are the main cause of the country facing consistent inflation and trade deficit. As per reports for 2016-2017 the imports have been increased by 21% to almost 49 billion dollars and the exports have been decreased by 3% and the amount of trade deficit has reached 30 billion dollars. Pakistan usually exports raw materials and unfinished goods but the amount of imports are almost double in number than that of exports.

Moderate inflation rate is good for the growth of the country but increase in the rate can harm the domestic growth of the economy and also result in elimination of thousands of jobs. Trade liberalization and Political regime has a great effect on inflation. Inflation elasticity with respect to trade liberalization is elastic which means that relatively small increase in the total amount of trade will result in relatively high increase in inflation example being the international trade. The low level of exports is due to less production in of exportable items, sometimes their quality is inferior and cannot compare to the quality of items in international market. Since Pakistan is a developing country,it cannot fulfill all of its economic requirements of raw materials and other capital goods by its internal sources. As a result, the amount of imports are far greater than exports.

In order to improve the situation some substantial measurementsshould be taken such as the enhancement of exports and increasing the productivity of the import substitutes. Government of Pakistan should improve the trade policies to ensure a win-win situation.


Lahore, January 12.