A Review on Fiscal and Debt Policies in Pakistan

Karim Khan

MPRA Paper from University Library of Munich, Germany

Abstract: Pakistan has been pursuing an active albeit expansionary fiscal policy since 1970s. In the mid-1970s to early-1980s, such policy choice was manifested in externally financed development spending, primarily in the form of investment in public enterprises. Despite excessive deficit financing, Pakistan’s economic performance never took off; rather, it remained on a path of truncated growth which, in turn, created structural hurdles like low productivity, poor investment climate, and higher unemployment. Likewise, deficit financing has been threatening the sustainability of fiscal framework as excessive public spending is not accompanied by corresponding enhances in domestic revenues. Consequently, these policies have caused persistence in fiscal deficit and the accumulation of public debt over time. These woes are added further by persistent deficit in external accounts and, the resultant depreciation of Pakistani Rupee, which has havocked the cost of debt-servicing over the same period. Given the history of incessant macroeconomic imbalances; currently, Pakistani economy has been trapped into a vicious circle of stagflation and low growth prospects amid unfunded losses of the State Owned Enterprises (SOEs), government guarantees to the Independent Power Producers (IPPs), unsustainable debt and huge cost of debt-servicing, sky-rocketing prices of the essential items, frequent though unsuccessful bail-outs of the IMF, low credit worthiness and negligible level of investment among others. This review is focusing on a detailed analysis of Pakistan’s fiscal and debt policies, with a view to provide a framework for resolving the structural economic woes that the country has currently been faced with.

Keywords: Fiscal Policy; Debt, Fiscal Deficit; Truncated Growth, Structural Economic Woes, Pakistan (search for similar items in EconPapers)
JEL-codes: E62 H11 H50 H62 H63 (search for similar items in EconPapers)
Date: 2024-10-05
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