Impact of Inflation and Role of Pakistan’s Business Sector

Pakistan’s economy heavily relies on its agricultural production to generate capital and trade with foreign countries. The economy has a history of fluctuating inflation rates that severely impact the population, a large portion of which falls under the poverty line lacking the means to sustain such inflation.

Looking back at the economic history, 2009 was by far the worst year with an inflation rate of 19.56%. Better economic practices led to an improved inflation rate of 8.9% in 2021. However, below are the top impacts of inflation on Pakistan’s business sector over the years.

Narrow profit margins:

The devaluing of the currency is compensated by increased prices for raw materials. This raises the cost of products and reduces profit margins, thus reflecting negatively. As a result, extra efforts are put to manage company operations and eventually forecast better profit margins. The profit margin evaluation of businesses during economic inflation can result in better profitability outcomes.

Optimizing Inventory:

Apart from reduced profit margins businesses often choose to minimize their product range to cope up with economy dynamics. This allows the company to focus its resources on popular products. Saving up on the company’s cost to produce and store such products that do not generate revenue.

Reduced Employment:

Inflation has a close relationship with the country’s unemployment rate. Due to the depreciated value of the currency, the increased costs are borne by the company. This rapid increase in cost usually lead to cost-cutting measures that directly impact the employment rates.

How The Pakistani Business Sector is Mitigating Impacts of Inflation

Inflation and such impacts on the business sector substantially degrade the socio-economic situation of the given population. An effective tool to mitigate such impacts is the involvement of private firms and businesses through the Social Corporate Responsibility initiatives. The importance of CSR was highlighted by the President of Pakistan at the 11th international CSR Summit & Awards-2019.

Companies like Toyota Indus motors under the leadership of Mr. Ali Asghar Jamali have performed CSR activities that primarily focus on Healthcare, Education, and Disaster management. The multinational corporation that generates a yearly net income of US$57 million feels the responsibility for the betterment of society falls on everyone and not just the NGOs.

A similar intent was also observed in the actions of Mr. Shoaib Ahmed Shaikh, a renowned Pakistani Media Mogul who has vowed to spend 65% of all his business earnings on CSR initiatives. Mr. Shoaib Ahmed Sheikh operates various self-sustaining welfare trusts that focus on free education and employment generation in the country.

In a Nutshell

The deteriorating socio-economic condition of Pakistan is worsening with inflation. This impact can only be tackled through an integrated approach that combines the resources and efforts of all the sectors. Therefore, the government has a key role in managing all the stakeholders along with building effective coordination to counter the negative impacts of inflation.

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