The macroeconomics of public sector deficits : the case of Pakistan

1991

Fiscal deficits have been at the forefront of macroeconomic adjustment in the 1980s, both in developing and developed countries. Fiscal deficits were blamed in good part for the assortment of ills that beset developing countries in the 1980s: over-indebtedness leading to the debt crisis beginning in 1982, high inflation, and poor investment and growth performance. This paper will examine the evidence for the macroeconomic effects of fiscal deficits, using the results of a set of ten case studies done for the Bank research project,"The Macroeconomics of Public Sector Deficits."The ten cases were Argentina, Chile, Colombia, Cote d'Ivoire, Ghana, Morocco, Mexico, Pakistan, Thailand and Zimbabwe. The authors first present a summary of the stylized facts on fiscal adjustment. Then the results are presented of the decomposition of the deficit in the case studies. The results of the case studies are then used to relate deficits to macro economic imbalances: first by analyzin...

Transylvanian Review of Administrative Sciences, 2013

The article aims to investigate some of the important factors contributing to the fiscal deficit in Pakistan for the period of 1976 to 2010. International trade, economic growth, total debt servicing and broad money supply are considered as foremost factors affecting fiscal deficit in Pakistan. The empirical findings reveal that only economic growth has an insignificant impact on fiscal deficit in the long run but has significant impact in the short run. Whereas, all other factors such as international trade, total debt servicing and broad money supply affect fiscal deficit significantly in both short run as well as in the long run. Moreover, it is found that there exists univariate Granger causality which runs from economic growth to fiscal deficit, from total debt servicing to fiscal deficit, and there exists bivariate causality between money supply and fiscal deficit in the short run. Also, in the long run all the factors Granger cause to fiscal deficit. The study has also found the existence of joint causality among fiscal deficit, trade, economic growth, total debt servicing and money supply.

IMF Working Papers, 1992

This is a Working Paper and the author would welcome any comments on the present text. Citations should ret'cr to a Working Paper of the International Monetary Fund, mentioning the author, and the date of issuance. The views expressed are those of the author and do not necessarily represent those of the Fund.

1995

ijtef.org

Effective macroeconomic management is critical for growth-induced employment generation and poverty reduction. Within this perspective, private investment plays an important role in revitalizing the economy leading to improvement in the living standard of the masses. However, persistence of macroeconomic imbalances, which unfortunately is the hall mark of Pakistan's economy, has posed serious threat to economic growth and development. The current study, therefore, aims at verifying the impact of government fiscal deficit on investment and economic growth using time series of thirty years stretching between 1980 and 2009.We believe that fiscal profligacy has seriously undermined the growth objectives thereby adversely impacting physical and social infrastructure in the country.

The Pakistan Development Review, 1996

The study attempts to analyse the sustainability of fiscal policy in Pakistan. Alternative foreign debt and domestic debt strategies were analysed for formulating meaningful policy guidelines. Such analysis was made consistent with other macro-economic variables like growth of GNP, inflation, and interest rates on debt. Alongwith the identifications of sustainable deficit, required deficit reduction in the actual fiscal deficit under appropriate assumptions was also estimated for three time periods: the 1980s, 1985–95 (recent past), and 1993–98 (the 8th plan period). The averages of the sustainable deficits for the above- cited periods under alterantive scenarios were estimated by utilising a sustainable deficit model for Pakistan. Our empirical findings indicate that Pakistan has been following such macro-economic policies pertaining to fiscal deficit as are not consistent with sustainable deficit. For instance, during the 1980s, deficit of about 4.2 percent of GNP was sustainable ...

This paper critically analyzes short-term effects of budget deficit on money supply, private and public investment, out put, balance of payment, international reserves and unemployment. Annual data for the period 1960-2005, taken from Economic Survey of Pakistan (various issues) and International Financial Statistic (2003) is used for analysis. Error Correction Mechanism (ECM) is used for estimation. The study revealed that short run changes in money supply is positively related to short run changes in foreign reserves. The short run change in money demand is positively related to short run changes in income. The short run changes in output is positively related to short run changes in consumption expenditures, private investment, public investment, and balance of trade. It is negatively related to short run changes in real rate of interest. Short run changes in private and public investment is positively related to short run changes in output. Short run changes in export is positively related to short run changes in output, relative prices of export, and exchange rate. Short run change in import is negatively related to short run changes in exchange rate. Short run change in unemployment is negatively related to short run changes in output growth (GDP). Based on findings of the study it is recommended that long-term private/public investment policies, can gain better result in economic growth. Export sector needs more attention in term of quality standard, price control, and internationally adopted marketing strategies. Skill development may also accelerate employment generating capacity of output growth.

Upse Discussion Papers, 2010

The Pakistan Development Review

A sound fiscal policy is important to promote price stability and sustain growth in output and employment. Fiscal policy is regarded as an instrument that can be used to lessen short-run fluctuations in output and employment in many debates of macroeconomic policy. It can also be used to bring the economy to its potential level. If policymakers understand the relationship between government expenditure and government revenue, continuous government deficits can be prevented. Hence the relationship between government expenditure and government revenue has attracted significant interest. This is due to the fact that the relationship between government revenue and expenditure has an impact on the budget deficit. The causal relationship between government revenue and expenditure has remained an empirically debatable issue in the field of public finance. The question of which variable takes precedence over the other has been a central issue to this debate.