The Impact of Budget Deficit, Money Supply and GDP Growth On Inflation In Pakistan: An Econometric Analysis

Maria Batool; Nimra Naveed Shaikh; Waqas Bin Dilshad

doi:10.52633/jemi.v5i3.315

Authors

Maria Batool National University of Modern Languages, Karachi, Pakistan. Author
Nimra Naveed Shaikh National University of Modern Languages, Karachi, Pakistan. Author
Waqas Bin Dilshad Benazir Bhutto Shaheed University, Lyari Karachi, Pakistan. Author

DOI:

https://doi.org/10.52633/jemi.v5i3.315

Keywords:

Inflation, Budget deficit, Money supply, GDP Growth, Pakistan Economy

Abstract

All nations, especially developing nations, have prioritized economic growth for decades. Some governments are focusing their monetary strategy on price stability. Home inflation shows the market's pricing stability. So the current study investigates why Pakistan cannot close the deficit gap despite various measures. We'll also investigate whether Pakistan's budget deficit and money supply increase inflation. Quantitative and time series secondary data from 1980-2022 Pakistan have been used. The budget deficit (BD), money supply (MS), and GDP growth are independent variables while inflation is dependent. Two-stage least square (TSLS) testing showed that MS directly affects inflation in Pakistan. It has been found out that the growth rate of Pakistan's BD will lead to an increase in inflation; there is a correlation between the two that is both positive and statistically significant. Price stability depends on national monetary and fiscal policies. Thus, monetary expansion and inflation are often related. Money growth causes inflation, while monetary policy adjustments reflect economic trends. In addition, the OLS test used in this research concluded that BD had a direct and favorable impact on inflation. Moreover, GDP has an inverse relationship with inflation, and it is predicted that as Pakistan's GDP growth rate increases, the country's inflation rate will fall. It is recommended that Pakistan's government must prioritize productive public investment to boost economic growth and reduce inflationary pressure, tax reforms are also needed to reduce deficit financing. Pakistan should also look for ways to control its excess spending to avoid budget deficits. In the end, the government must encourage entrepreneurship and innovation to develop a business-friendly environment.

Author Biographies

Maria Batool, National University of Modern Languages, Karachi, Pakistan.

Lecturer - Department of Management Sciences, National University of Modern Languages, Karachi, Pakistan.
Nimra Naveed Shaikh, National University of Modern Languages, Karachi, Pakistan.

Lecturer and Coordinator - Department of Management Sciences, National University of Modern Languages, Karachi, Pakistan.
Waqas Bin Dilshad, Benazir Bhutto Shaheed University, Lyari Karachi, Pakistan.

Assistant Professor, Benazir School of Business – Benazir Bhutto Shaheed University Karachi, Pakistan.

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