Pakistan instituted a series of Five-Year Plans during the period 1955-1998 and a Ten-Year Perspective Plan alongside a rolling Three-Year Development Plan.13 Pakistan continued its policy of imports-substituting industrialization during the 1950s.14 During the Korean War Moreover, structural reforms should boost investment, while foreign demand is expected to pick up in tandem with the global economic recovery. This means optimal investment which promotes economic development and avoids wasteful and unproductive investment. Fiscal policy deals with macroeconomic levers of power. This implies the adopting of such monetary policies that will check inflation and frequent development of the currency. The productive and efficient use of investible resources can be better secured by direct controls and control over capital issues. Such adjustments can be made quickly, and monetary authorities devote considerable resources to monitoring and analyzing the economy. Thus the Central Bank by relying on both the quantitative and qualitative instruments of credit control can limit inflation and help the process of economic development. State bank of Pakistan plays an important role in the process of economic development, which is clear from the following points: Issue of Notes State bank of Pakistan has monopoly in issuing currency notes. õMFk¢ÍÑÎè t,:‹.FW ›Ðè³èô8úƒ¡cŒ1ŽL&³³³ÓŽ9…ÆŒa¦±X¬:ÖëŠ År°bl1¶ This shift in economic priority entailed a readjustment in the fiscal and monetary policies of the country. The present economic growth has slowed down due to tight monetary policy which has caused a drag on the process of economic recovery. Fiscal, Monetary Policies and Institutions’ Role (Political, Social and Economic) in Pakistan 37 1981 to 2009. However, economic development leads to inflationary pressures in under-developed countries due to a variety of structural rigidities and imbalances. Role or Importance in Economic Development 2. In Pakistan, the State Bank of Pakistan has the authority to adopt the tight, neutral or loose monetary policy. With a view to secure an accelerated rate of economic growth, the monetary authority should press into service its techniques of credit control to influence and shape the character and pattern of investment and production. In under-developed economies, governments have to spend on a gigantic scale under the planning process to secure growth rate commensurate with the growth rate of population and also to provide social and economic overheads. In Pakistan’s scenario, we need to broaden the economic base and adopt a growth-oriented policy. 5, 10, 50, 100 rupee notes are issued by the bank on 12 July 1976. The sector contributes about 25% towards GDP which is the highest of any other economic sector. ?§€:¢‹0ÂFB‘x$ !«¤i@ڐ¤¹ŠH‘§È[EE1PL”ʅ⢖¡V¡6£ªQP¨>ÔUÔ(j 1. The role of monetary policy in economic development. The gist of the argument is that a proper control upon the supply of money will prevent economic fluctuations and pave the ground for rapid development. Domestic saving is just 9.9 % of GDP in Pakistan; it should be 25 % for rapid economic development. However, there are economists who suggest a policy of high interest rates on the following considerations: (a) It will serve as an anti-inflationary measure by restricting borrowing from the banks for speculative purposes and undesirable investments; (b) It will stimulate savings and thus increase the supply of investible sources. Besides joint loans by commercial banks and state owned financial institutions can greatly help in this direction. Suitable Interest Rate Structure, 6. Besides, the rise in per capita income and increase in population during the development process also increases the demand for money to carry out day-to-day transactions. Similarly, selective credit controls should be adopted to influence the pattern of investment and production by differentiating between the costs and availability of credit to different sectors and industries. Monetary policy plays an important role in achieving sustained economic growth. Economic development results in rising demand for money because the growth of economy and a corresponding contraction of the subsistence sector greatly increase the transaction demand for money. Similarly, if the supply of money is more than needed by the requirements of trade and industry, it may be used for speculative purposes, thereby inhibiting growth and causing inflation. over the stability of the economic development. À•p|î„O×àX Disclaimer 9. Monetary policy is the process by which the monetary authority of a country control the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. Normally a tight monetary policy approach is workable in a rapidly growing economy to obstruct the rise in prices. IMPACT OF MONETARY POLICY ON MONETARY ASSETS IN PAKISTAN A Money Multiplier Approach (1980-81 to 1999-2000) HAFEEZ UR REHMAN and IMTIAZ AHMED* Abstract. The results point to a transmission mechanism in which banks play an important role. Appropriate Adjustment between Demand for and Supply of Money, 2. A large number of empirical studies on the relationships of monetary policy and inflation are available and most of these have analyzed the effectiveness of monetary policy in controlling inflation in Pakistan. Content Filtrations 6. Researchers have tried to examine various issues related to monetary policy in developed countries. This concludes budgets, debts, deficits and state spending. And this must be on cheap rates to keep the burden of the debt low.”. In such a situation, the monetary policy should be directed to improving the foreign exchange position. Some studies proved its positive impact on the economic development empirically, while some studies highlighted its negative effects as well. The continuously rising demand for money makes it imperative for the monetary authority to increase money supply at a rate roughly equal to the rate of increase in real income, so that prices do not fall consequent upon a rise in national output. For the attainment of the objective of growth with stability, the monetary authority of developing economies, therefore, has to play a positive role in creation, working and expansion of banking and other financial institutions and extend credit facilities where needed. But these arguments do not carry much weight. The monetary authority should step in to make appropriate guarantees and provide rediscounting facilities with a view to induce and encourage banks to provide medium and long-term loans for productive purposes. There are three major functions of State Bank of Pakistan preparation of Monetary Policy, Management & Organization, and Controlling. It … Plagiarism Prevention 4. To reduce the credit creating capacity of the banks further, the Central Bank may supplement it with the sale of government and banks securities, raising the serve ratio and by instituting selective credit controls. EFFECTIVENESS OF MONETARY POLICY IN PAKISTAN Significance of various channels that transmit the monetary policy shocks in Pakistan to the real economy has been analysed by few economists. But the rate of saving being low, the government has to resort to large scale borrowing and deficit financing to cope with the rising investment. The monetary authority, therefore, should keep a constant vigil on the movement of prices and so regulate the supply and direction of money and credit that it puts a check on rising prices. This being the case, the savings of the people cannot be mobilised effectively for economic development and consequently the rate of growth is very slow. SAVE THIS ARTICLE EMAIL THIS ARTICLE. Before publishing your articles on this site, please read the following pages: 1. For this propose more banks and financial institutions need to be established to provide larger credit facilities and to mobilise saving for productive purpose. For this propose more banks and financial institutions need to be established to provide larger credit facilities and to mobilise saving for productive purpose. The points stated below explain in detail the role of agriculture in the economic development of Pakistan. Image Guidelines 5. Appropriate Adjustment between Demand for and Supply of Money: 4. There exists vast non-monetised sector in under-developed economies which is not responsive to changes in the quantity of money and interest rates and such, this sector remains outside the effective control of the Central Bank. The commercial banks, mainly provide short-term credit requirements of businessmen and traders and are reluctant to provide medium and long-term credit to meet the financial requirements of industry and for manufacturing in general. In a developing economy, the monetary policy can play a significant role in accelerating economic development by influencing the supply and uses of credit, controlling inflation, and … This paper uses vector autoregressions to examine the monetary transmission mechanism in Pakistan. This will, of course, depend on the range of credit institutions that exist in the economy and also on the forms of credit controls that are employed by the Central Bank. conclusion and the policy recommendations. Ateeqa Farooq1 and Bushra Yasmin2. The role of fiscal policy The role of fiscal policy—the national government’s planned, discretionary balance between its outlays and recurrent revenues (broadly, spending and taxes)—has long been a … Ordinary least square procedure has been applied. This will obviously help increase the rate of economic development. Downloadable! IT Industry is a service industry that can provide a significant boost to our economic … Journal of Economic Cooperation and Development, 38, 2 (2017), 1-26. Fiscal deficit is included as a proxy ... Do We Need Low Inflation for Development? II – REVIEW OF LITERATURE The role of foreign economic assistance in economic development and growth remains contentious in economic literature. Role of Monetary Policy in Economic Development of Pakistan ... health is the main part of human well-being and had lots of economic benefits. Similarly the Central Bank and financial corporations to provide finance to business and industry. Debt Management. Read this article to learn about the major role of monetary policy in a development economy: Monetary policy in an underdeveloped country plays an important role in increasing the growth rate of the economy by influencing the cost and availability of credit, by controlling inflation and maintaining equilibrium the balance of payments. (2005) found that credit channel is the most 'important conduit for transmitting monetary policy actions to the real economic activity. In most of the under­developed countries, the banking system is not fully developed. This study investigates the role of fiscal policy in enhancing economic growth of Pakistan by using annual time series data during the period from 1982 to 2010. Economic development requires investment on a gigantic scale both by the public sector and the private sector. Monetary policy can speed up the process of economic development by improving the currency and credit system of the country. 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role of monetary policy in economic development of pakistan

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