An analysis of fiscal deficit :Its financing problems solutions and prospects for Pakistan

Abstract

In Pakistan the persistence of large fiscal deficits, among other reasons, is one of the primary causes for the rise in pubic debt and the major source of macroeconomic imbalances over the last two decades. Failure in enhancing tax revenues consistent with the growing expenditure requirements, on the other hand, and the inability to balance productive and non-productive expenditures on the other, exacerbated fiscal imbalances over this period. As a result, while the governments current expenditures continued to rise, there wasn't a commensurate rise in the government's ability to meet these expenditures from its revenues. Infect the government had to resort to borrowing to meet even its current expenditure requirements and thus faced high government dis-saving (borrowing for consumption) that prevailed through out the 90's. Therefore, during this period, the fiscal deficit averaged around 7 percent of GDP. Pakistan has faced long and harsh winters in the decade of 1990's, which caused serious macro economic imbalances and subsequent rise in public debt. A drastic increase in public debt was seen due to large fiscal imbalances, unyielding projects like motorway, fraudulent tax system, rise in non developmental expenditures, corruption etc were some of the few reasons. The military government has the top priority of leaving the IMF and World Bank financing and to pay back the expensive debt. As rightly so every financial year Pakistan is liable to pay its heavy interests, which again increases the current expenditure and hence leaving ever increasing fiscal gap, which then again has to be financed.