PAKISTAN FISCAL POLICY

Rizwan jid Ali iraz azish

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INTRODUCTIO N
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Fiscal policy
Fiscal policy is manifested in a government's policies on taxation and expenditures. To obtain funds for their operation, government units generally collect some form of taxes. The expenditure of these funds not only provides goods and services for constituents, but has a direct impact on the economy.

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1 Attainment of maximum welfare of common man. 2. Increase in the employment opportunities. 3. Equitable distribution of national wealth.
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Objectives of Fiscal Policy:

4. Development of rural areas and reduction in disparity. 5. Control on inflation/price level.

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Importance of fiscal policy

Important tool used by government to abolish high rate of inflation. To increase taxes . Brings about a decrease in government spending. Decreases circulation of money. Strengthen the economy and provision of employment opportunity. Effective economy management.

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Over-view of Pakistani economy Objectives : vSelf sufficiency. vEncourage investment. Click to edit Master subtitle style vEquitable distribution of wealth vExport expansion
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Conditions of Pakistani economy

Pakistan fiscal position is worsened due to: Many factories are closed down or facing power crises. Taxes are not promptly paid. No taxes on agriculture land. Stock exchange and real estate pay almost Click to edit Master subtitle style no taxes. No law and order. Corrupt official High revenue is spent on defense and interest payments
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Choice of capital and establishment of government Division of military and financial assets Canal water dispute Constitutional problems Electricity problem Annexation of princely states
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DIFFICULTIES AT THE ESTABLISHMENT OF PAKISTAN

FISCAL POLICY FROM 1947 TO 1958 made Lack of resources huge investment was
Huge investment in hydroelectric power railroad, manufacture of rail road and other projects Investment in the private sector by the government Some public manufacturing plants were established by government holding companies Much of the economy, and particularly industry, was eventually dominated by a small group of people Industrial growth was 23 percent per annum in the first plan period (1955-60) The food grain shortage in early 1950s because of the poor performance of the agriculture sector, forced Pakistan to borrow long term credits for imports of food grain.

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AYUB KHAN ERA

GOVERNMENT OVERVIEW

1.Relations

with the US were better because they had allowed US to open their military bases in west Pakistan so Russia was against Pakistan 2.This resulted in huge economic aid from the US and the European countries so the industrial sector was highly developed 3.Capital was shifted from Karachi to Rawalpindi in anticipation of the new capital called now Islamabad. 4.Indus water treaty between Pakistan and India was signed 5.Ayub maintained icy relations with India and also 4/11/12

THE AYUB KHANS ERA

MARTIAL LAW IMPOSED THE GREEN REVOLUTION POLICY POLICIES WERE BASED ON CAPITALISM AND FOLLOWED THE FREE MARKET ECONOMICS PRINCIPLES THE EXPORT BONUS SCHEME :the manufacturing sector provided a high rate of effective subsidy on exports and high rate of production INDUS WATER TREATY BETWEEN PAKISTAN AND INDIA :Pakistan was given three eastern rivers INCENTIVES: little incentives for the structural change in industry for exports RICH TO BE MORE RICH AND POOR TO BE MORE POOR REGAL REFORMS : set up for arbitration councils under the law in the urban and rural areas were to deal with cases and there was 4/11/12 complete liberalism.

Contd

AGRICULTURE : this sector was highly regulated because of the identification by the government which resulted in 11 percent in growth per year. TRANSFER FROM PUBLIC TO PRIVATE SECTOR :even public sector projects commissioned by the Pakistan industrial development corporation were given away to the private sector THE GDP GROWTH REAMINED AT THE 6.8 PERCENT PER ANNUM The era of post war 1965 was featured by marked decrease in foreign loans inflow, slow down in the industrial growth, and increase in defence expenditures and re-imposition of certain controls as foreign exchange constraints Thus the establishment and expansion of large scale manufacturing sector, predominantly agri-based was the 4/11/12

1971 TO 1977 ZULFIQAR ALI DOMESTIC REFORMS: he introduced different reforms BHUTTO
in the agricultural sector and the education he opened different schools for the rural areas and nationalization of wheat rice sugar industries all over Pakistan NATIONALIZATION OF BANKS AND INDUSTRIES: major heavy and mechanical industries were nationalized and came under the control of government eg kesc and Bhutto formed other government companies like Pakistan steel mills and port qasim also the banking industry flourished and the branches of the bank were increase to 75 percent from November 1971-1976 and the banking services at that time were used by the privileged classes. LABOR POLICY: one of the most important corner stone of this government .he introduced and established labor courts and scheme of workers 4/11/12 participation in the management of the companies, in

TRADE OF RICE AND COTTON: As the industries were nationalized so Bhutto focused on the export of cotton and wheat which was of finest quality all over the world . ESTABLISHMENT OF THE NDFC: with this he decided to gave a bail out plan to industries for over 100 million MILITARY OPERATION IN BALCOSHISTAN: he allowed the armed forces to led operations in Baluchistan and dismissed the governments in 4/11/12

CONTINUE

DEVALUATION OF RUPEE: so that our products have a low value in terms of foreign market and the other countries import goods from us of very cheap prices . PASSPORT REFORMS: he gave the right to every citizen to hold passport and facilitated skilled labor to go to foreign countries for work and a lot of people actually went for these jobs CONSTITUTION OF 1973: as after the separation of east Pakistan there was a need of constitution for the remaining west Pakistan s o 25 member committee which was elected framed the new constitution for the country and was enforced on 14th august 1973 in which the following points were mandatory .quadiani group were declared non muslims prime minister was given control of government, teaching of Arabic Islamiat and Pakistan studies compulsory and parliamentary form of government and Islamic ideological council was set up and provincial government were granted autonomy. FOREIGN POLICY: Bhutto from starting rose to the international politics and after him Pakistans relations with other countries established like the USA, and the ARAB countries .under Bhutto Pakistan formed very strategic relations with China AND Bhutto hosted the second conference of Islamic 4/11/12 organization in Lahore

The seventies

Public savings were low largely because fiscal deficit remained at 7.6% GDP on average The high inflation throughout i.e. 12.2% was the result of high oil prices The fiscal deficit was financed mostly from external sources, i.e. 50.9 percent, from bank borrowing and non-bank borrowing. The deficit resulted from huge imports; even the boost in the exports as a result 4/11/12

The Decade of Eighties

The period of 1980s was more focused towards denationalization and the role of public sector was to be reduced. In this context two agreements were made on Extended Fund Facility (EFF) with IMF and Structural Adjustment Loan (SAL) with World Bank. These two agreements were the 4/11/12 preconditions of USA for rescheduling

The medium term Standby Extended Fund Facility (EFF) agreements with IMF were signed in 1988 with conditions regarding devaluation, import liberalization, tariff reduction and financial sector reforms. During this period the agriculture sector was heavily regulated, agricultural commodities were procured 4/11/12 by the government at lower than the

These large farmers were also able to get the subsidized loans from Agricultural Development Bank for tractors, farm mechanization Fiscal deficit in 1980s remained at about 6.8% of GDP on average where as the primary deficit was recorded about 3.5% on average. Fiscal deficit was financed predominantly by non-bank borrowing i.e. 49.6% of the total. The external financing reduced to 22.6%
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The Decade of Nineties

Structural reforms in the agriculture sector were meant to improve this sector. Due to misuse of these policies, agriculture prices were liberalized and the subsidies given to the sector, the price support and procurement system were all discontinued. For industrial sector, huge 4/11/12 investments in the 1990s in thermal

a number of measures were undertaken to create a better business environment to attract foreign inflow of capital. allowing of foreign equity participation up to 100 percent, liberalizing of foreign exchange regime, liberalizing import policy, convertibility of rupee on current account and a number of fiscal incentives in the form of quantitative and non tariff barriers were also removed. agriculture, services, infra structure and
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despite several attempts to raise revenue and reduction in development expenditures the fiscal deficit that was significantly high in 1980s continued to remain high in the period of 1990s All these efforts failed to attract significant inflow of foreign capital and investment in Pakistan. The main reason behind this failure

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despite several attempts to raise revenue and reduction in development expenditures the fiscal deficit that was significantly high in 1980s continued to remain high in the period of 1990s fiscal deficit as a ratio of GDP remained above 6%. The revenue generation efforts failed 4/11/12 account of weak structural base on

The GDP growth rate remained about 4.4% on average throughout The budget deficit remained 7.3% Thus the revenues remained stagnant; the non-developmental expenditures especially non-discretionary i.e. debt servicing expenditures rose 4/11/12

The 2000s

continuation of a more liberal outward oriented economic strategy aiming at enhancing exports and to get integrated into world economy structural reform programs designed and initiated in 1990s, was continued and pursued during 2000s to put the economy on the path of recovery
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The privatization process was pursued main focus was on banking, telecommunication, oil and gas and energy sector. Liberalization of Foreign exchange regime and macro economic stability helped boosting investors confidence. Stock markets became extremely attractive for foreign investment. Huge public sector investment, especially in water and power sector, 4/11/12

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9/11

The event of September 11, 2001 and Pakistans alliance with coalition forces in the fight against terrorism helped its economy in many ways. The rescheduling of $12.5billion bilateral and multilateral external debts resulted in about $1.5 billion annual relief in shape of decreased debt servicing charges. Lifting of sanctions brought handsome foreign grants about $1 billion to $1.5 billion per annum during last four five years. Some external debt were written off. The remittances amounting to $18.5 billion during last five years helped in building foreign exchange reserves easing Balance of Payment position
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The major features of 2000s The GDP growth rate remained around
annual average of 4.9% during 2000s The Fiscal deficit remained around annual average of 4.5% of GDP This deficit was financed by bank borrowing i.e. 5.8%, non-bank borrowing i.e. 62.4% and from external resources i.e. 31. 8%. The exports fluctuated around 18.4% of the GDP per annum where as the imports remained liberal and grew at a faster rate i.e. 40% annually.
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The rising oil prices also raised the import

Highlights 2010-2011

Tax collection by the FBR was targeted at Rs 1667 billion for fiscal year 2010-11. However, the target was downward revised to Rs 1,588 billion, as a result of devastation caused by floods during July and August 2011 The catastrophic floods reduced growth and posed a further challenge to public finances by depressing budget revenues and additional spending to meet the humanitarian and reconstruction needs, thereby

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Pakistans fiscal deficit increased to 6.3 percent of GDP in FY200910 against the budgeted target of 4.9 percent whereas fiscal deficit for FY200809 was 5.3 percent. Lower revenue collection and higher than budgeted expenditure on security and subsidies were the main reasons for this undesirable increase in fiscal deficit. 4/11/12

sky-rocketing international oil prices the domestic as well as global food inflation phenomena the subprime crisis in the United States and the resultant slowdown of worldwide economic activity disturbed law and order situation in the country
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strategy aiming at enhancing exports and to get integrated into world economy. The structural reform programs designed and initiated in 1990s, was continued and pursued during 2000s to put the economy on the path of recovery.
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Salient Features of Reformed General Sales Tax

GST will apply on both at import and local supply stages. Standard rate of 15% has been proposed instead of the present rate of 17% or multiple other rates going upto 25%. There shall be no fixed tax, reduced 4/11/12 tax, enhanced tax, retail price

GST will replace the existing regimes of sales tax and excises on services.