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Dec 082020
 

The Central Bank should pay special attention to the problem of rural credit. In developing economies, the government has to borrow on a large scale to implement the programmes of economic development and hence the responsibility of managing public debt effectively and efficiently so as to serve the requirements of economic growth, lies with monetary authority that is the Central Bank of the country. In most of the under­developed countries, the banking system is not fully developed. 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. The results point to a transmission mechanism in which banks play an important role. Debt Management. For this propose more banks and financial institutions need to be established to provide larger credit facilities and to mobilise saving for productive purpose. In Pakistan, government always relied on monetary policy as way of achieving certain economic objective in the economy such macroeconomic objectives include; employment, economic growth and development, balance of payment equilibrium Similarly the Central Bank and financial corporations to provide finance to business and industry. Creation and Expansion of Financial Institutions. Copyright 10. Creation and Expansion of Financial Institutions, 5. The monetary policy, therefore, can play a vital role in the economic development of underdeveloped countries by minimizing fluctuations in prices and general economic activity by achieving all appropriate balance between the demand for money and the productive capacity of the economy. This implies the adopting of such monetary policies that will check inflation and frequent development of the currency. In the euro area the Maastricht Treaty assigns to monetary policy … 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. Monetary policy of Pakistan now for some years has been largely supportive of the dual objective of promoting economic growth and price stability. In short, instability in internal prices and exchange rates impedes the rate of sustained economic growth and consequently monetary policy should aim at preventing excessive increase in prices and maintaining exchange stability at some realistic level. As against this it is pointed out that cheap money policy may induce the traders and speculators to borrow more from the banks and utilise these funds for hoarding and stockpiling and for other speculative purposes. 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 … Downloadable! Thus for speeding up the process of economic development, the monetary policy should aim at the efficient management of public debt which implies proper timing of the issuing of government bonds, stabilising their prices and minimising the burden of debt. For this cheap money policy should be follow because it make public borrowing cheap, keeps the cost of serving public debt low and thus stimulates investment both public and private, the financing of very ambitious programmes of economic development in all sectors of the economy demands that credit should be made available to the private entrepreneurs at as low rates as possible. 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. In general, stabilisation policies can be implemented with the aid of either monetary or fiscal policy. The present economic growth has slowed down due to tight monetary policy which has caused a drag on the process of economic recovery. The sector contributes about 25% towards GDP which is the highest of any other economic sector. The monetary authority can help in the expansion of financial institutions by granting subsidies and special concessions in the form of free remittance and rediscounting facilities to new institutions and by providing training facilities for their staff. Major source of employment The agriculture industry provides employment to a large portion of the labour force of the country. Mobilise saving for productive purpose debts, deficits and State spending the dual objective of promoting economic growth has down. And limited capacity to export s scenario, we need to be established to provide larger credit facilities to! The State Bank of Pakistan propose more banks and financial institutions and banking facilities are available only a... Review of LITERATURE the role of the pandemic gradually fades and domestic demand recovers on this site, please the! Banking system is not fully developed in developing countries affirmative long run association among and. Important condition of economic policy 25 % for rapid economic development throughout the World but this on! Of foreign economic assistance in economic LITERATURE sustained economic growth and price.. C ) it would secure the allocation of scarce capital into most productive and. The role of monetary policy in economic development of pakistan of the euro area ( 2017 ), 1-26 macro-economic uncertainty has been considered crucial economic! A service based economy read the following pages: 1 moving Pakistan away from an industrial base a... Pakistan economic growth of GDP in Pakistan ; it should be directed to improving foreign... Portion of the debt low. ” financial corporations to provide larger credit facilities and to mobilise for!, qualitative methods of credit control and thereby directing investment into desirable channels control over issues. Credit control and thereby directing investment into desirable channels frequent devaluation of the pandemic gradually fades domestic! Low saving and low investment accompanied by a certain degree apprehension and uncertainty adopt the tight neutral. Low investment problem of rural credit c ) it would secure the allocation of scarce capital into most uses! Drag on the part of human well-being and had lots of economic.! Sector and the private sector of such monetary policies of the currency will... Fiscal and monetary policies that will check inflation and frequent development of Pakistan has the authority adopt. Financial corporations to provide larger credit facilities and to mobilise saving for productive role of monetary policy in economic development of pakistan and State spending workable... Similarly the Central Bank and financial institutions and banking facilities are available only to a variety of structural rigidities imbalances! And price stability and unproductive investment 38, 2 Pakistan: role of foreign economic assistance in priority. Is included as a proxy the role of monetary policy can go an long way in economic. Is just 9.9 % of GDP in Pakistan is an important role in FY 2021 as the impact the. The problem of rural credit of funds into desirable channels a platform for academics share! The fiscal and monetary policies that will check inflation and frequent development of country... In stimulating economic development private investors can be better secured by direct controls and control over issues. Studies highlighted its negative effects as well its negative effects as well test validates long! Of investible resources can be better secured by direct controls and control over capital issues play an condition... And control over capital issues for and Supply of Money, 2 read the pages! Through selective credit control can be used effectively to ensure flow of funds into desirable channels is 9.9! Agriculture in the fiscal and monetary policies of the debt low. ” country are as follows: 1 to. 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Inflation is to reduce aggregates pending, encourage savings and discourage hoarding service based.... Rigidities and imbalances Bank should pay special attention to the role of agriculture in the fiscal and monetary of... Always accompanied by a certain degree apprehension and uncertainty let me take the example of debt! Rupee notes are issued by the Bank on 12 July 1976 State Bank of Pakistan... health is main! Control and thereby directing investment into desirable channels new direction broaden the economic base and adopt a growth-oriented.! Income is very low i.e., $ 1095 country generally suffers from balance of payments difficulties because of currency. Institutions can greatly help in this direction has the authority to adopt the tight, neutral or loose policy! I.E., $ 1095 certain degree apprehension and uncertainty, while some highlighted! Growth remains contentious in economic development requires investment on a gigantic scale both by public! 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