The Ministry of Finance noted in its Monthly Economic Update and Outlook report released on Friday that high domestic inflation could have an impact on domestic economic activities.
International developments and persistently high domestic inflation, according to the paper, may have an influence on domestic economic activity. Supply chain concerns and increasing international commodity prices are among the determinants of current trends in both international and domestic inflation.
Under typical circumstances, these prices follow a cyclical pattern, which means that price spikes are usually followed by a period of cooling off. The current cycles of international food and oil prices, however, are not the same.
To begin with, these markets have a high level of volatility when compared to historical norms. Second, due to geopolitical tensions, the upward price trend may continue.
High inflation and the monetary policy response that follows it may temporarily impair Pakistan’s economy’s cyclical position, lowering growth prospects in the short term. Pakistan’s productive capacity, on the other hand, will decide its long-term growth and employment prospects. This will necessitate a significant increase in the inclination to invest as well as the productivity of investment expenditures.
Stimulating the investment propensity means that a bigger portion of the country’s revenue is used to finance Gross Fixed Capital Formation. More productive investments from overseas sources (foreign direct investments) as well as private and public domestic investors will be attracted by structural reforms.