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DEFICIT FINANCING
CASE OF PAKISTAN
By Sadaf Nawaz
Financing for development
CONTENTS
 Introduction
 Background of the problem
 Situation of Deficit in Pakistan
 Sources of deficit financing in P...
INTRODUCTION
 The method used by a Government to finance its budget
deficit, that is, to cover the difference between its...
BACKGROUND OF THE PROBLEM
 In Pakistan the ratio of the budget deficit is different in
different years. From last two dec...
SITUATION OF DEFICIT IN PAKISTAN
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
Cash surplus/deficit (% of GDP)
Cash surplus/deficit
(% of G...
SITUATION OF EXTERNAL DEBT SERVICING IN PAKISTAN
0
1E+09
2E+09
3E+09
4E+09
5E+09
6E+09
7E+09
8E+09
9E+09
Debt service on e...
SOURCES OF DEFICIT FINANCING IN PAKISTAN
Following are the sources of deficit financing in
Pakistan
 Printing new currenc...
CAUSES OF DEFICIT FINANCING IN PAKISTAN
The main reasons of deficit financing in Pakistan are
as under:
 Rise in governme...
ADVERSE EFFECTS OF DEFICIT FINANCING
 In case the deficit financing is financed by printing
of notes by the central bank,...
TAX REVENUE AS PERCENTAGE OF GDP IN
PAKISTAN
0
2
4
6
8
10
12
20002001200220032004200520062007200820092010201120122013
Tax ...
CONCLUSION
 In Pakistan deficit financing is a way to create
further deficit. As government take more loans to
fulfill bu...
RECOMMENDATIONS :-
Pakistan need to take serious steps to coupe this
situation.
 Pakistan should frame its import and exp...
CONTI…
 Government should focus on Human capital.
 Strong coordination between fiscal and monitory
wing of government is...
THANK YOU
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Deficit financing wwww

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When a government spends more than what it currently receives in the form of taxes and fees during a fiscal year, it runs in to a deficit budget. When the budget deficit is financed by borrowing from the public and banks, it is called deficit financing.

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Deficit financing wwww

  1. 1. DEFICIT FINANCING CASE OF PAKISTAN By Sadaf Nawaz Financing for development
  2. 2. CONTENTS  Introduction  Background of the problem  Situation of Deficit in Pakistan  Sources of deficit financing in Pakistan  Causes of deficit financing in Pakistan  Adverse effects of deficit financing on economy of Pakistan  Conclusion  Recommendations
  3. 3. INTRODUCTION  The method used by a Government to finance its budget deficit, that is, to cover the difference between its tax receipts and its expenditures is called deficit financing.  Deficit financing is an important source of capital formation in the developed and underdeveloped countries of the world. But it can be a cause of economic problems in long term.  In developing countries, the governments are faced with persistent deficits in the budgets. They are liberally using the delicate tool of deficit financing for paying back the domestic and foreign loans, meeting the government consumption expenditure etc., same is the case of Pakistan.
  4. 4. BACKGROUND OF THE PROBLEM  In Pakistan the ratio of the budget deficit is different in different years. From last two decades the budget deficit is 5.4% to 8.7% of GDP. The average deficit rate was 6% in the period of 1970 and it was 7.6% in the period of 1980. The Pakistan tax system is still narrow and punctured due to the poor and weak tax administration.  The balance of payments deficit has become a permanent problem of Pakistan's economy. For the last fifty years Pakistan has been facing continuously from a current account deficit. The international loans are used to finance the deficit. The debt service charged more than 5% of the GDP of the country.
  5. 5. SITUATION OF DEFICIT IN PAKISTAN -9 -8 -7 -6 -5 -4 -3 -2 -1 0 Cash surplus/deficit (% of GDP) Cash surplus/deficit (% of GDP)
  6. 6. SITUATION OF EXTERNAL DEBT SERVICING IN PAKISTAN 0 1E+09 2E+09 3E+09 4E+09 5E+09 6E+09 7E+09 8E+09 9E+09 Debt service on external debt, total (TDS, current US$) Debt service on external debt, total (TDS, current…
  7. 7. SOURCES OF DEFICIT FINANCING IN PAKISTAN Following are the sources of deficit financing in Pakistan  Printing new currency notes  Public borrowings  Foreign loans, aid and grants  Using previous balances  Borrowings from banks including from the central bank
  8. 8. CAUSES OF DEFICIT FINANCING IN PAKISTAN The main reasons of deficit financing in Pakistan are as under:  Rise in government expenditures  No rule based fiscal policy  Fiscal deficit  Low savings  Rapid population growth  Low tax revenue collection
  9. 9. ADVERSE EFFECTS OF DEFICIT FINANCING  In case the deficit financing is financed by printing of notes by the central bank, It creates inflationary impact on the economy, which (a) discourages foreign investment (b) reduces exports (c) increases imports (d) increases inequality in the distribution of income (e) lowers saving rate in the economy and (f) encourages wasteful expenditures.  When the government borrows funds, It competes with the private business borrowers for funds. The additional demand for funds raises interest rate in the money market. As a result, thereof, the private investment is depressed.
  10. 10. TAX REVENUE AS PERCENTAGE OF GDP IN PAKISTAN 0 2 4 6 8 10 12 20002001200220032004200520062007200820092010201120122013 Tax revenue (% of GDP) Tax revenue (% of GDP)
  11. 11. CONCLUSION  In Pakistan deficit financing is a way to create further deficit. As government take more loans to fulfill budget deficit the debt also increases resulting further deficit in coming years.  Pakistan tax system is also weak. Pakistan is collecting its revenue more in form of indirect taxes as compared to direct taxes.
  12. 12. RECOMMENDATIONS :- Pakistan need to take serious steps to coupe this situation.  Pakistan should frame its import and export policy in such a way that the supply of essential commodities does not fall and they are provided at reasonable prices in the country.  Government should increases the rates of taxes on luxury goods, reduces its own non essential expenditure, introduces compulsory saving schemes etc.  Improvement in tax system and they should focus on direct taxes in order to increase tax revenue.
  13. 13. CONTI…  Government should focus on Human capital.  Strong coordination between fiscal and monitory wing of government is also necessary to reduce the deficit problem.  Merit base selection in public institutions can increase the efficiency of institution instead of blind privatization.  People should be encouraged to invest. When they earn more, they will contribute in tax revenues.  Strong foreign policy to attract foreign investment.
  14. 14. THANK YOU

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