Assignment :-

“ECONOMICS of
PAKISTAN”
TOPIC :- “DEFICIT
FINANCING”
Submitted by :-
AFZAAL ALI ROLL NO 322
SAYED BILAL ROLL NO 376
RAZA CHAUDHARY ROLL NO 339
FAIZAN ALI BUTT ROLL NO 371
HAFIZ M. AFZAL ROLL NO 356

Submitted To:-
PROF. FARIDA FAISAL
Hailey College Of Commerce
 Punjab University
Lahore

CONTENTS

➢ Introduction

➢ Sources of deficit financing

➢ Advantages of deficit financing

➢ Disadvantages of deficit financing

➢ Causes of deficit financing

➢ Impacts of deficit financing in

Pakistan

➢ Solutions of deficit financing

 ➢ Conclusion

DEFICIT FINANCING
DEFINITION:
Deficit financing is practised whenever government
expenditure exceeds government receipts from the public such as taxes,
fees, and borrowings from the public. Such an excess of government
expenditure can be financed either by drawing down the cash balances of
the government or by borrowing from the central bank.
Two Aspects of Deficit Financing
Deficit financing as an income generating expenditure has two aspects:

Pump priming: Pump priming means the power of deficit financing in

stimulating private investment through giving small doses of investment in
the economy.

Compensatory spending: Compensatory spending means that deficit

financing can be used for compensating and neutralising tendencies
towards over-saving and under-investment.
Deficit Financing and Deficit Budgeting

1. Deficit budgeting refers to the situation when current expenditure

exceeds current revenue. In this situation no item on capital account is taken
into consideration.

2. On the other hand, when we take into consideration not only current
receipts but also receipts on capital account, e.g., public borrowing, and the
gap between receipts and expenditure is covered by deficit financing.

Sources of deficit financing

Government Receipts
The Government receipts consist of the following four sources:
1. Revenue Receipts (Net of Provincial Shares): In Pakistan, the heavy
dependence is upon revenue receipts, about 65-70% of the revenue is
estimated to be drawn from revenue receipts. It includes tax revenue, non-
tax revenue, and surcharges.
(a) Tax Revenue: In taxes we have direct taxes such as income tax, and
wealth tax. Indirect taxes such as central excise, sales tax, and
custom duty. Direct tax comprises about 70% of Pakistan’s total tax
revenue.
(b) Non-Tax Revenue: It includes income from government property
and enterprises and receipts from Civil Administration and other
functions.
(c) Surcharges: Surcharges on natural gas and petroleum fall under this
category.
2. Capital Receipts: Capital receipts include external borrowing and internal
non-bank borrowings consisting of unfunded debt, public debt, treasury and
deposit receipts besides the revenue account surplus and the surplus
generated by public sector, etc.
3. External Resources: External resources are loans and grants which come
from various sources. These sources include consortium, non-consortium
and Islamic sources of aid:
(a) Consortium: Consortium provides aid at both bilateral and
multilateral levels:
(i) Sources of consortium bilateral
aid are Belgium, Canada, France, Germany, Italy, Japan,
Netherlands, Norway, Sweden, United Kingdom and United
States.
 (ii) Consortium multilateral aid
comes from Asian Development Bank (ADB), International Bank
for Reconstruction and Development (IBRD), Int. Development
Association (IDA), Int. Finance Corporation (IFC), and Int. Fund
for Agricultural Development (IFAD).
(b) Non-Consortium: Non-consortium sources of loans and grants
mostly provide bilateral aid. These include Australia, China, Czech
Republic, Denmark, Finland, Rumania, Switzerland, Russia and
Yugoslavia.
(c) Islamic Aid: Bilateral aid from Islamic countries come from Saudi
Arabia, Kuwait, Qatar, United Arab Emirates, Turkey, Lebanon, Libya
and Iran. While multilateral Islamic sources of aid are OPEC Fund, and
IDB.
Loans and grants received by Pakistan can be classified into ‘project’ and ‘non-
project aid’. Non-project aid can be further decomposed into food, non-food, BOP
and Relief aid.
4. Self-Financing by Autonomous Bodies: This is actually the surplus left
after meeting all the expenses of these bodies. This surplus is available to
government for revenue and development expenditures.

Government Expenditure
Government expenditure is classified into current expenditure and development
expenditure:
1. Current Expenditure: It comprises mainly debt servicing, defence, general
administration, social services, law and order, subsidies, community services,
economic services, grants to Azad Jammu and Kashmir, Railway and others.
2. Development Expenditure: Public Sector Development Program (PSDP) is
another name given to Government’s development expenditure. The priority
areas are transport and communication, power and water. These three
sectors combined cover about 50% of total allocation of PSDP.
The share of current expenditure is always remain substantial, it constituted
around 70-80% of total Government expenditure. Non-development
expenditure is generally regarded as being excessive and therefore
subjected to persistent public criticism. With sharp increase in population,
constant threat from the enemies and increasing cost of corruption, non-
development expenditure is subjected to a rising trend which could only be
controlled by rapid economic development. On the other hand, negligence of
non-development expenditure may result into ill-equipped and under-staffed
 hospitals, dispensaries and educational institutes, and arrears in
maintenance of roads, dams, bridges, electricity and forests. Non-
development expenditure should be economically managed in order to
ensure the economic development of Pakistan.
There are six major heads of current expenditure of Federal Government of
Pakistan:
1. Defence,
2. Debt servicing,
3. Subsidies and grants,
4. General administrative,
5. Social services, and
6. Others.

Tax Structure of Pakistan

1. The narrow base enigma has been a base in Pakistan’s tax structure from the
beginning.
2. In 1987 when population of the country was more than a hundred million, the
total number of taxpayer was just over a million.
3. The main base taxes imposed are direct and indirect taxes.
a. Direct tax of the Federal Government comprises of income tax, wealth
tax and corporate tax
b. Indirect tax, on the other hand, consists of custom duty, excise duty,
sales tax, import duty and all others.
4. Indirect tax contributes the predominant share to the total tax collection.
Direct taxes have persistently dropped their share in total tax revenue.
5. Indirect tax, on the other hand, contributes more than 70% of the total tax
revenue. Indirect tax is regressive. It may cause the inflation to rise and its
incidence is fall on poor class of the economy.

Deficit Financing in Pakistan

Following are the sources of deficit financing in Pakistan:
1. Printing new currency notes
2. Public borrowings
3. Foreign loans, aid and grants
4. Using previous balances, and
 5. Borrowings from banks including from the central bank.
Dr. Mahboobul Haq defines deficit financing in the following words:
(i) Net borrowings by the government from the banking system which
includes the State Bank of Pakistan (SBP) and commercial banks
but excludes non-banking institutions and individuals, and
(ii) Net borrowings by the Government from the SBP only.
But the public debt does not only constitute the above sources, it also includes
money lent to Government out of the balances of the banks which would have been
held if the Government had not borrowed them.
Deficit financing is a sound and necessary instrument of the Government finance
and its role, its desirability and limitations of its use in mobilising revenue, must be
properly analysed in the context of its broad implications on the economy and
compared to the adequacy of other techniques of resource mobilisation.
It was planned in Third Five-Year Plan that there will be no deficit financing during
the said plan but the government had to revise the plan. In the Fourth Five-Year
Plan there were annual plans and major upsets in the economy. In the Fifth and
Sixth Five-Year Plans, though there were very large amounts of foreign remittances
but there was not remarkable reduction in deficit financing.
A well-managed deficit financing could be a key to greater economic achievements
especially for a less developed country. A wise finance minister has to keep an eye
on all the factors of the economic development and spent the public fund in the
manner that is most beneficial to the nation.
Advantages/Uses of deficit financing

1. For prosecuting a war: During the state of war, the government has to
finance the purchase of arms and ammunitions through deficit
financing. Deficit financing during war is very injurious for the
economy. Private investments and savings are at their worst level.

2. For fighting depression: Deficit financing can be really helpful for the
government during the period of depression. It can stimulate private
consumption and investment. The government can increase its own
expenditure on public works programme. The government’s tax
revenue remains constant but its expenditure has gone up, therefore,
the deficit has to be met by borrowings. In this case, as government
investment rises, the level of national income and employment also
increases by more than the proportionate increase in government
 investment. Deficit financing can be used to create additional
employment, when the economy is suffering from a deficiency of
effective demand.

3. For financing economic development: The economic problems faced

by underdeveloped countries are different from that of advanced
countries. In advanced countries, the task of capital formation is in the
hands of private entrepreneurs but in poor countries there is a dearth
of people willing and able to undertake entrepreneurial functions.
Therefore, it is the government’s responsibility to boost up investment
in public sector, generate revenue from it and encourage people to
save and invest. But, in a country, where a majority of people are
living at the subsistence level, the margin between income and
consumption is very low so that the voluntary savings cannot provide
sufficient resources for development. The government may attempt to
increase the volume of resources by additional taxes. Because of
extreme poverty of the great mass of the people, additional taxation
beyond a point raises problems, both economical and political.
Adverse Effects of deficit
financing(Disadvantages)
There is always a time lag between Govt. investment and the output from the
projects. Increase in supply of money creates inflation, by which poor people
are badly affected. Their purchasing power reduces to a greater extent
whereas profit margin of businessmen increases. Society is divided between
haves and have-not. Increase in prices of domestic goods causes imports of
cheaps goods whereas domestically produced goods high prices reduces the
export earnings, which results in the adverse balance of payments position.
Cost of production of industrial goods increases with the increase in prices of
raw material etc., therefore foreign investment in the country becomes less
attractive.
DEFICIT FINANCING AND INFLATION

Deficit financing in a developing country is inflationary while it is not so in an

advanced country. In an advanced country the government resorts to deficit
financing for boosting up the economy. There is all round unemployment of
resources which can be employed by raising government investment
through deficit financing. The result will be an increase in output, income
and employment and there is no danger of inflation. The increase in money
supply leading to demand brings about a corresponding increase in the
supply of commodities and hence there is no increase in price level.
But, when, in a developing economy, the government resorts to deficit
financing for financing economic development the effects of this on the
economy are quite different. Public outlays financed by newly-created
money immediately create monetary incomes and, due to low standards of
living and high marginal propensity to consume in general, the demand for
consumption of goods and services increases. But if the public investment is
on capital goods, then the increased demand for the consumer goods will
not be satisfied and prices will rise. Even if the outlay is on the production of
consumption goods the prices may rise because the monetary incomes will
rise immediately while the production of consumer goods will take time and
in the meanwhile prices will rise. Though investment is being continuously
raised (through taxation, borrowing and external assistance), most of it goes
to industries with long gestation period and for providing basic
infrastructure. Though there is effective demand, resource5 lie under or
unemployed. Lack of capital, technical skill, entrepreneurial skills etc. are
responsible in many cases for unemployment or underemployment of
resources in a developing economy. Under such conditions, when deficit
financing is resort to, it is sure to lead to inflationary conditions.

Besides, in a developing economy, during the process of economic

development, the velocity of circulation of money increases through the
operation of the multiplier effect. This factor is also inflationary in character
because, on balance, effective demand increases more than the initial
increases in money supply. Deficit financing gives rise to credit creation by
commercial banks because their liquidity is increased by the creation of new
money. This shows that in a developing economy total money supply tends
to increase much more than the amount of deficit financing, which also
aggravates inflationary conditions. The use of deficit financing being
expansionary becomes inflationary also on the basis of quantity theory of
money.
Causes of Deficit Financing
Over the stretch of the past six to seven years, Pakistan's trade deficit has
only worsened instead of improving. The element of self-reliance lacking in
the mechanism of Pakistan's economy is one major reason as to why
Pakistan has to import goods mainly on heavy prices from other countries. In
comparison to the heavily priced imports that mostly comprise of
manufactured goods, the exports of Pakistan in the international market
constitute chiefly of raw materials or semi-manufactured goods that are a
great deal cheaper and lesser in demand as compared to the market of
manufactured goods. Another factor that contributes towards exacerbating
 Pakistan's trade deficit is the paucity of variety in the gamut of Pakistani
exports. The textile sector constitutes a major part of our exports and
although the exports of Pakistan have increased from before they still
contribute very little to the overall Gross National Product of the country
1. Increase in development programs.
2. Lack of saving habits.
3. Increase in population.
4. Lack of fiscal discipline.
5. Political instability.
6. Low output of agricultural sector.
7. Tax evasion and corruption.
8. Increase in non-productive expenditure.
Impacts of deficit financing in pakistan
earning from economies that have led the world, Pakistan still has an
opportunity for
introspection; to strive to balance the macro‐economic indicators, instead of
leaning towards
unnecessary deficit financing and with overall reliance on our own revenue
generation.
From mid 2008, Pakistan started registering an imbalance in its overall
economy, a trend that
kept up till 2nd quarter of 2010. By end of 2008, Pakistan’s fiscal deficit
increased from $5.6
billion to exceed $8 billion. Trade deficit increased from $13 billion to exceed
$18 billion. By
November 2008, the foreign reserves had fallen to $6.5 billion. Instead of
taking stock of the
situation and implementing concrete measures, the government of Pakistan
took the easy
option, shoving the country towards adversity.
Pakistan was forced to approach IMF in a bid to help bail out its finances – to
deficit finance the
economy. The initial package with IMF was of $7.6 billion, which was later
increased to $11.3
billion in 2009. Other than the IMF tranches, Pakistan sought the help of
several Multi‐lateral
and Bi‐lateral financers, which in return, increased its external debt &
liabilities (EDL) to $54
billion by mid of 2010, from $41 billion in January 2008.
Pakistan also tried floating sovereign bonds, another form of deficit financing
‐ the Euro and
Saindak bonds worth $2.2 billion in FY09. Countries that have unpredictable
inflation and
varying exchange rates, with respect to their own currencies, often issue
sovereign bonds in
foreign currencies. This then creates the grave danger that in case the
countries are unable to
afford or repurchase the foreign currency bonds according to the specified
timetable, chances
of sovereign default become high. Such countries are further shunned by
investors and as a
double whammy, the foreign debt increases.
In the view of the fact that both of the above measures taken with
international capital
markets, were not sufficient to overcome Pakistan’s self‐created economic
woes, the
government was compelled towards deficit monetization, the third form of
deficit financing.
Pakistan’s current government has relied heavily on domestic borrowings,
the result of which
has been, yet again, disparity in the debt dynamics. Moreover, this domestic
borrowing
stimulated record‐high inflation of 24% in mid of 2008.
Pakistan’s domestic debt multiplied, from Rs.2,610 billion in FY07 to become
Rs.4,490 billion by
end of March 2010. This augmentation in the total domestic debt stock took
place mainly in the
‘Floating Debt’, secondly in the ‘Unfunded Debt’ and thirdly in the
‘Permanent Debt’. By the
end of March 2010, Pakistan’s domestic debt stood at $53.2 billion, which
was approximately
30.6% in percent of GDP.
All this deficit financing has turned out to become a futile exercise,
unsuccessful in bringing
about the desired results and unable to stimulate the economy towards any
positive direction.
By mid 2010, Pakistan had a total Public debt of around $100 billion; is
already paying annual
Interest Payments of $5.6 billion and total Debt Servicing has exceeded $7.6
billion annually –
expected to exceed $10 billion after the 2010‐11 fiscal year.
The situation now is that in essence, Pakistan is raising debt to repay debt,
with little or no
impact on the overall condition of the economy.
It’s amusing to notice that the first IMF loan tranche was of $3.1 billion and
during that same
quarter, the government had to repay $3.65 billion as debt servicing. In the
2010‐11 budgets,
an amount of $10.3 billion has been kept for debt‐servicing purposes, with
an increase of 7%
compared to previous year’s estimates. This again contributes to Pakistan’s
budget deficit.
The government has to pay $10 billion every year till 2015 under the loan
segment. Pakistan’s
‘clever’ Finance Manager Mr. Abdul Hafeez Sheikh has already announced
that further IMF
follow‐up programs can be subscribed to, in order to repay the original
sought debt. What does
it concern him or anyone else in the government. In all likelihood, they will
be gone ensconced
somewhere abroad, while the Pakistani Awaam will continue to pay the
price.
For Pakistan, this seems to be a never ending vicious cycle. Deficit Financing
is never an ideal
approach, nor to be dragged on unnecessarily.
Deficit financing ‐ works only if there are concrete plans and sounds policies,
with a long term
vision of how to spend the money that is raised through debt, generate
revenues and with an
actionable plan as to how to repay that debt. To achieve these aims ‐ honest,
sincere,
competent and committed governors are required, which Pakistan does not
have. Under these
circumstances, all we are doing is increasing our debt and raising the
liabilities for our future
generations to pay off. The money that should have been used to invest in
the people and
future of Pakistan has been and continues to be used to serve state
expenditure on burgeoning
and bloated bureaucracy, foreign visits, corruption, and extravagant
personal expenses of the
government functionaries.
Today, Pakistan’s debt situation is alarming. We have no viable plans to raise
sustainable and
steady revenue, and no viable specific plan to reimburse and settle off the
accumulated
external and domestic debts. There are very few choices to make ‐ hard and
purposeful
decisions

Budget deficit likely to increase to Rs 1 trillion’

By Sajid Chaudhry

ISLAMABAD: Senate Standing Committee on Finance on Tuesday was informed that

country’s budget deficit is expected to increase to Rs 1 trillion whereas the Finance
Ministry has predicted that budget deficit will reach slightly over the revised
(upward) figure of Rs 852 billion in the current fiscal year 2010-11 — subject to 1%
budget surplus to be created by the provinces.

State Bank of Pakistan (SBP) and the Ministry of Finance have expressed divergent
views on new figure of budget deficit during the current fiscal year 2010-11. SBP
says budget deficit could reach 6% of the GDP — whereas Finance Ministry predicts
that it would remain less than 6% — however, would increase from 4.7% of the GDP
to over 5%.

Excessive defence expenditures due to the regional environment, power sector

subsidies and less-than-expected revenues and increase in international prices of
commodities and oil are thought to be the main causes of the increase in budget
deficit during the first half of the current fiscal year.

Senate body on finance met in the parliament house with Senator Ahmed Ali in the
chair, Minister of State for Finance Hinna Rabani Khar, Governor SBP Shahid Hafeez
Kardar, Secretary Finance Dr. Waqar Masood Khan and other officials were also
attended the meeting.

Giving presentation on state of economy, Governor SBP informed the Committee

that keeping in view the budget deficit trend in the Q1 of the current fiscal year, the
SBP estimates suggest that budget deficit will reach 6% of the GDP or Rs.1 trillion
by end June 30, 2011.
Budget deficit likely to increase to Rs 1 trillion’
However, Secretary Finance Dr Waqar Masood Khan informed the meeting that
budget deficit is been projected to be Rs 852 billion or 4.7% of the GDP during the
current fiscal year. He said budget deficit should have been Rs 426 billion by the
end December 2010, however, he further informed that actual budget deficit has
been recorded 0.15% of the GDP over and above Rs 426 billion. The Secretary
informed the Committee that final figures that would arrive by January 15 — it is
expected that budget deficit will be 2.9% of the GDP for the first half of the current
fiscal year 2010-11. The Secretary Finance informed the meeting that against the
budget deficit during the first half of the ongoing fiscal year, the things have shown
improvement.

Federal Board of Revenue — with collection target revised to Rs 1.650 trillion from
Rs 1.8 trillion, has collected Rs 651 billion during the first half, some Rs 160 billion
have been collected by FBR in the month of December 2010. Coalition Support Fund
arrears worth Rs 60 billion have been received from the United States, Rs 40 billion
have been transferred to national kitty from SBP profits for the first half. Improved
revenues and inflows to help contain budget deficit at reasonable level, he added.

Giving details on SBP borrowing by the government, Governor SBP informed the
Committee that SBP borrowing till December 24 was recorded at Rs 307 billion and
after receipt of Rs 127 billion deposit in national kitty it has reduced to Rs 180
billion by December 31, 2010.

He also informed that in a recent meeting with Prime Minister, it has been decided
that government will borrow from market and stop borrowing from SBP. He also
explained a new plan before the committee that government would borrow from
Islamic banking system to meet its financing needs as well as general public would
be allowed to participate in action of the government treasury bills so as to break
the monopoly of the banks.

Secretary Finance informed the Committee that IMF programme, which is

suspended these days, is being revived and IMF has allowed extension of 9 months
for enforcement of the remaining performance benchmarks. In this regard, an IMF
mission is due in Islamabad soon to determine the new performance benchmarks
that would be met during the extended period of nine months extension period.

One IMF programme is put on track the remaining disbursements might resume;
FODP pledges are also facing delay due to the IMF program suspension. Secretary
informed that once FODP money is received, World Bank budget financing $300
million have been approved and will be released to Pakistan and remaining Rs 180
billion SBP borrowing would be cleared in due course of time to bring it at 0% by
end June 2011. He also informed that commodity circular debt would be retired and
a plan is being finalised for securitization of commodity operations debt Rs 400
billion..

Consequences of Deficit Financing

1. Increase in the money supply with the public

2. Rise in the level of income, and
3. Rise in the general price level.

2. In the second part, there are five reasons by which the deficit financing results
into inflation:

(a) When there is a variety of channels into which increased money supply can flow

(b) Non-homogeneity in skills or efficiency

(c) Supply of resources is perfectly inelastic

(d) Increase in wage rates

(e) Increasing marginal cost

What can be done?

To initiate that positive chain reaction and kick‐start the economy, with the
intent to bring
constancy to its macro‐economic indicators, Pakistan has to formulate
policies that are
consistent and productive. Few strategies that Pakistan could adopt shall be
discussed below.
However, without some fundamental reforms the technical strategies may
not work.
The Socio‐Behavioral Change in the Governance Culture
Of all the things that need to happen, this is the most urgent, fundamental,
and foremost. No
strategy, no tactic, no policy will work or be implemented in earnest, until
either our governing
class stops its rent seeking behavior, where they are always looking at short
term personal
gains without any regard to the country or its people. Alternatively, we get
new a class of
governors who are selfless, honest, and dedicated to the country and its
people. Personal
greed, nepotism and financial corruption that have become the hall mark of
our governing elite
will never let any meaningful strategy and policy to be either developed or
implemented.
Therefore, nothing that we suggest below will happen – can happen ‐ without
the personal
efforts of our governors.

Rule of Law
This is the second most fundamental change that needs to happen. This is
also the litmus test
for the changing behavior of our governing elite. Without the proper
implementation of rule of
law, no economy can thrive. Our governing class needs to lead by example.
If the world knows we are law abiding nation, it will be easier to even raise
debt, reschedule it,
attract foreign investment, attract direct business with Pakistani
entrepreneurs, facilitate
business, reduce inflation and hence make the living much easier.

Curtailing of Expenditure
All unnecessary expenditure should be frozen and fiscal strictness should be
enforced. Austerity
measures have to be strictly adopted by all and sundry. The total outlay of
budget for 2010‐11
is Rs3,259 billion that has risen from the budget of Rs1,874 billion in 2007‐
08. In 2007, the
federal government expenditure was estimated at Rs1,353 billion. This rise
in expenditure is
neither justified nor complimented by the dismal performances of the
various government
ministries, divisions and commissions. Their contribution towards
enhancement of exports or
local consumption has not registered any improvement or significant growth.
All such
augmented government expenditure should be curtailed. Severe pruning of
the highest order is
needed.
Accountability and Transparency
According to Transparency International 2010, corruption in Pakistan has
increased to a level of
Rs223 billion compared to Rs195 billion in 2009. Pakistan’s rank has moved
up in list of most
corrupt countries to rank at 42. Transparency, elimination of corruption and
sincere intentions
to overcome challenges – are present day requirements for Pakistan.
Unfortunately, Pakistan currently faces mismanagement, misplacement of
economic priorities
and corruption.
Implementation of Tax Reforms and Immediate Broad based Tax
Collection
It’s quite unfortunate that only 3.34 million out of the 170 million nationals
are registered
taxpayers, from which 2.7 million are active tax payers, which makes it 1.5%
of the population.
In India, around 4.7% of the population; in developing countries like
Argentina, around 16.5%
and in first world countries like France, 58% of the population pays taxes.
In the 2010‐11 budgets, the targeted tax revenue is Rs1.78 trillion and non‐
tax revenue is
targeted at Rs632.2 billion. Pakistan needs to increase the revenues by
atleast twice the
amount being collected, by broadening of tax base and uniformly
implementing it over all
provinces.
The government did initiate several measures to increase the tax base, but
superficial and
selected implementation, failed to achieve the preferred base. Political
influence, insincerity of
the audit firms, corruption within the taxation department and pressurizing
tactics by
influential citizens leaves very little space for potential improvement.
Exploration of Large Natural Resources and attract Foreign
Investment
Large scale projects related to exploration of natural resources in
collaboration with foreign
governments, potential investors and trans‐national programs are crucial to
uplift the economy,
when capital is required to fund the economy. This one of the best options to
invite capital create jobs, alleviate poverty and accrue long term benefits
from the natural resources. Foreign
Investment is one of the essential channels needed to attain durable and
sustained growth for
any economy.

Pakistan has confirmed 185 billion tons of reserves of Coal ‐ equivalent to

atleast 850 trillion
cubic feet (TCF) of Gas and 500 billion barrels of Oil – confirmed by Chinese
and Russian
feasibility studies. These reserves compete the riches of Saudi Arabia, are
world’s second
largest reserves after USA’s 250 billion ton reserves. Using only 2% of these
reserves Pakistan
can generate 20,000 MW of electricity for around 40 years.

Privatization Process
Pakistan should immediately sell off its loss accumulating Public sector
enterprises or curtail
their expenditures, unless an improved, reorganized and restructured
program is launched.
These loss making enterprises causes an additional burden on our budget of
Rs235 billion
($2.78 billion) and contributes towards the $8.1 billion fiscal deficit.

Overseas Pakistani contribution

Pakistan should seek the immediate help of overseas Pakistani, requesting
them to come
forward and donate generously – other than the foreign remittances they are
officially
contributing. However, this trump’s card could be played by leadership that
has credibility and
reputation, which unfortunately, most of our leaders lack. Unaccountability
and fraud in ‘Qarz
Utaro Mulk Sanwaro’ and freezing of Pakistan’s $10 billion foreign reserves,
under the
government of PML‐N were examples of day‐light robbery – a depressing
demonstration.
Conclusion
Moving on – an effort should be made to acknowledge and learn from the
positive economic
decisions undertaken by the developed countries. Perhaps, the scale and
years of deficit
financing did not bring about the fruitful results, nevertheless, economic
decisions to invest in
targeted programs, did reduce unemployment to a large extent. When
President Obama
announced his stimulus package of $800 billion, he promised to seek
additional funding from
the Congress to fund some $50 billion infrastructure plans, in a bid to build
roads, railways, and
airports – in addition to the initial investments. This plan would see 150,000
miles of roads and
4,000 miles of railways built in the next six years.

REFRENCES :-
http://www.friendsmania.net/forum/ma-economics-notes-
assignments/58220.htm#ixzz1NizGJ4Pm

EBOOK FROM www.scribd.com

www.thevision21.org/pdf/PAKISTAN_Why_Defict_Fianancing.pdf

http://www.blurtit.com/q822830.html
http://www.guesspapers.net/2988/disadvantages-of-deficit-financing/

www.dailytimes.com.pk/default.asp?page...5-1-2011_pg5_7

Thank you