Assignment :“ECONOMICS of PAKISTAN”

TOPIC :- “DEFICIT
FINANCING”

Submitted by :AFZAAL ALI SAYED BILAL FAIZAN ALI BUTT HAFIZ M. AFZAL ROLL NO 322 ROLL NO 376 ROLL NO 371 ROLL NO 356

RAZA CHAUDHARY ROLL NO 339

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, nontax 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 ‘nonproject 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, nondevelopment 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. Nondevelopment 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. 2. 3. 4. 5. 6. Defence, Debt servicing, Subsidies and grants, General administrative, Social services, and 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-notesassignments/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

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