a) Produce a report on the economic performance of your country or a country of your choice

since 2019 by examining the data on GDP growth rates. Fully analyse the factors that caused
the observed fluctuations. (80 marks)

Answer: There are multiple key indicators that determine the economic performance of every
country. Pakistan is developing country with its population increasing rapid. Due to a rapid
increase in the population size of the country, many foreign countries including China are
aiming to invest in the country (Burki et al., 2019). The current investor confidence for
Pakistan is low due to the instability in the economic conditions. But the government has
started taking initiatives through which they can directly attract foreign investment. Pakistan
is facing significant economic difficulties that are a result of enduring structural problems.
From the years 2001 and 2018, Pakistan made great strides in eliminating poverty as more
than 47 million people were able to escape poverty thanks to the growth of off-farm
employment opportunities and a surge in remittance inflow (Jabeen et al., 2020). However,
despite the rapid decrease in poverty, socioeconomic conditions have not significantly
improved, as evidenced by the poor and stagnant state of human resources outcomes, which
include high rates of stunting (38%) and learning poverty (75%) (Hussain et al., 2019).
The country we have chosen for the analysis is Pakistan and the factors are:

Gross Domestic Product: The GDP of the country determines the total goods and services
produced by the country for a given time. Higher GDP for a country is one of the major
growth trends in a long run. In 2020, the GDP of Pakistan was USD 323.01 Billion but has
been on the verge of downfall since covid-19. It is around 0.4% currently which is lower than
most of the neighbouring countries that include India, Bangladesh, and Afghanistan (Menhas
et al., 2019). Covid-19 was considered was one of the major reasons for the declining GDP
rate. After covid, political instability, complicated times with USA and fluctuation in policies
are a few factors that caused the fluctuation within the country.

The factors that impacted the GDP of Pakistan are below. These factors caused the above
fluctuation in the economy.
1. Unemployment Rate: The employment rate of a country determines the number of
people that are not working over the total pool of people that fall under the working
class. In Pakistan, the current unemployment rate is 4.4% which has decreased from
last year’s rate of 5.8%. There are multiple factors that have caused fluctuation such
as covid, increasing population size of the country and lack of industries in the
country. Due to these factors, the skilled labours are a burden on the economy of the
country rather than a support. Closure of many industries in the past 3 years has led to
an increase in the unemployment of the country (Munir & Ameer, 2020).
2. Inflation Rate: The inflation rate is explained as the consumer power while
purchasing the basket. In Pakistan the current inflation rate is 9.9% which has
increased from 5.7% last year (Nazneen et al., 2019) . The overall inflation rate in
Pakistan is low as compared to other countries, but the major problem is the high
unemployment rate and low minimum wage rate. This has caused an influx of
problem for the people of Pakistan (Nawaz et al., 2021). The lower middle class are
unable to purchase basic products that are consumed on daily basis. This low demand
has led to less consumption of product which has decreased the production of services
and products. Due to the unstable economic conditions, the government of Pakistan
was forced to implement an aggressive monetary policy that led to increase in taxes.
These taxes have further reduced the income level of employees that have reduced the
purchasing power (Nazneen et al., 2019).
3. Consumer confidence index: For any country, it is important to have the confidence
of its people. The consumer confidence index provides information related to the
consumers that are willing to spend. In Pakistan the consumer confidence index is
measured by the state bank of Pakistan. Currently, the consumer confidence index of
Pakistan is 47.6 which has decreased from the last quarter (Zakaria et al., 2019). It
was around 47.6 last quarter. The two core factors of this decrease in consumer
confidence index are the increase in in inflation rate and the depreciation of Pakistani
Rupees. The government of Pakistan has taken multiple steps such as providing relief
packages to lower middle class. As of yet, the increase in not that significant but it is
expected to increase with a percentage of 3.2 (Zakaria et al., 2019).
4. Trade Balance: One of the major indicators for a country is its Trade. The trade
balance determines the exports and imports of the country. Ideally, the exports of the
country are supposed to be higher than its import. This leads to more foreign currency
and less payment through local currency (Xu et al., 2019). In Pakistan the major issue
has been regarding the exports of the country. Due to a decline in the overall industry,
Pakistan has low exports as compared to imports in the country. The trade deficit for
last year was USD28.6 billion. The country despite having capacities and natural
resources relies fully on its imports. Other than importing necessary items, a larger
chunk of luxurious items is also present in the deficit. This has led to devaluation of
the local currency. Currently, Pakistan has imposed strict bans on the imports of the
country. This has led to a decrease in the overall trade deficit but has become the
reason of industry shutdowns. Most of the equipment, raw material and machines
were imported, due to this ban organizations are unable to purchase them locally.
 This has led to major shutdowns especially in the manufacturing industry of the
country. Currently the major exports of Pakistan are textile, rice and leather goods.
5. Currency rate: The rate at which the currency is traded makes a huge difference in the
economic growth for the country. In Pakistan, the rupee has been on a constant verge
to decline rapidly. This has caused the country to suffer from its deficit in terms of
trade. Currently, 1USD= 290 Rupees which is the ever lowest fall the for the
currency. Due to this fall, the products that are imported are charged a lot higher than
that of its value. Also, the companies that are importing raw materials and
equipment’s charge the cost into their finished products. This reducing the purchasing
power of the consumers as a whole since they receive their income in Rupees while
the additional cost that is associated with the products is associated to dollar. Due to
this match the overall economy of the country is facing different challenges (Xu et al.,
2019).
The above factors explain the indicators that is causing fluctuation in the overall economy of the
country. All the 6 factors mentioned are related to each other and provide stability for the
economy and impact the GDP. In Pakistan, political instability is one of the major causes of
fluctuation in the economy. The country is on the verge of Bankruptcy. Covid-19 was considered
was one of the major reasons for the declining GDP rate. After covid, political instability,
complicated times with USA and fluctuation in policies are a few factors that caused the
fluctuation within the country. Pakistani government is trying its best to surge the IMF
investment deal that would enhance the overall stability in the country (Shabbir et al., 2020).
Other than foreign investment it is important to have a new monetary policy that would relax the
bans on imports on necessary products that cannot be manufactured in the country. Once the
country opens their imports, the manufacturing industry will start to flourish that would increase
the GDP of the country. This would lead to currency appreciation and reduction in the
unemployment rate of the country (Shabbir et al., 2020).

b) Economic theory suggests that there are interlinkages between GDP growth, Unemployment
rates and Inflation rates. Do you observe the expected interlinkages between these three
economic indicators over this given time-period? Explain why. (20 marks)

Answer: The theory that suggest the interlinkages is called Phillips Curve. It is concept that
determines the relationship between Unemployment, GDP and inflation rate.
The three economic indicators are interlinked. These three indicators provide stability and
instability in the economy of the country. Positive GDP and decreasing unemployment rate
with inflation rate is the sign of an ideal economy. GDP is the overall goods and service
being produced within the country. If the GDP is lower this means that the country is
manufacturing less products or the overall productivity is less as compared to other countries.
As manufacturing is low, industries will shut down that would lead to unemployment of
skilled labours (Rehman et al., 2021). Low GDP also upsets the demand supply momentum
of a country, this means that even if the companies are manufacturing different products, it
would not generate higher demand. As per the theory of Philip Curve if the GDP growth is
increasing, the unemployment rate would decrease since better opportunities will be created
for skilled labours and organizations will not cut the job of employees.
Inflation rates are an important aspect to consider when the determining the demand and
supply of products. Philip Curve suggest that higher inflation makes the overall products
expensive for the consumers to buy and decrease their purchase power. As the GDP is
higher, the inflation rate will increase since the demand of product will be high (Nazneen et
al., 2019). To meet the overall demand the price is set high so that they could reduce the
demand. In Pakistan, this is not the case since the GDP is on the verge to collapse and
inflation rate is higher causing the economy to suffer in a long run.
The unemployment rate in Pakistan is plotted in the graph below. The trend shows that after
covid-19 the unemployment rate has increased by 2% which was stable before.

The relationship between unemployment rate and inflation rate is inverse. If unemployment
rate is higher in a country the inflation rate becomes low. But in Pakistan this is not the case,
the unemployment rate is on the verge of increasing but the prices are not decreasing as
Philip Curve theory. The increase of prices is majorly due to the ban on imports. Due to
shortages, the prices are increasing, and the supply is also decreasing. This has created an
opposite effect on the economy of the country hence making it unstable. The overall inflation
rate in Pakistan is low as compared to other countries, but the major problem is the high
unemployment rate and low minimum wage rate. This has caused an influx of problem for
the people of Pakistan.
The inflation rate trend is shown on the graph below which is on the verge of increase. This
is majorly due to ban on imports and restriction in the manufacturing industry.
To conclude, it is important for the government to make necessary affects in the policies that
will impact both factors for example decrease in the inflation rate and increase in the GDP
rate. This would create an ideal economic condition for any country in a long run (Rehman et
al., 2021).
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