final fresentation GOVERNMENT DEBT

8/7/2019 final fresentation GOVERNMENT DEBT

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Group Members:Almazia Shahzad

Ayesha SyedAhmer Zaman Khan

Khushboo SalmanHumza Sajid


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To finance this deficit the amount the countrys

government borrows either from the private sector by

issuing bonds and securities or directly from other

international financial institutions is called GOVERNMENT

DEBT

When a government spending > taxes revenues = Budget

deficit


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RICARDIAN VIEW

A debt-financed tax cut has

no effect on consumption,national saving, the realinterest rate, investment, net

exports, real GDP, even in theshort run

TRADITIONAL VIEWShort Run:

Y, u

Long Run:Y and u back

closed economy: r, I open economy: , NX

(or higher trade deficit)


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Consumers are forward-looking

Know that a debt-financed tax cut today implies an increase in

future taxes that is equal-in present value-to the tax cut.

T

hus, the tax cut does not make consumers better off, so theydo not raise consumption.They save the full tax cut in order to

repay the future tax liability.

Result: Private saving rises by the amount public saving falls,

leaving national saving unchanged.


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Higher interest rates

Higher taxes and lower spending

Spending of the debt

1. Development expenditure e.g transport & education

2. Revenue expenditure e.g pension & transfer payments

Constraints to long term progress given expected higher

level of interest rates and taxes


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Public debt exceeded 90% at the start of the new century

Poor real GDP growth

Pakistan:The only severely indebted country in South Asia


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A TREMENDOUS TURNAROUND

Accelerated growth

Improved macroeconomic indicators

Stable growth in public debt combined with an excellentgrowth in nominal GDP

GDP ratio down from 81.4% in 2001 to 57.9% in 2007

Improvements due to slower growth domestic andexternal debt and growth in GDP


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ECONOMIC DOWNTURN

Crumbling situation after 2007

Debt to GDP ration down from 60.5% in 2007 to 69.5% in

2010TotalTDL amount almost doubled in 2010 since 2007

Global recession

End of Musharraf regime?


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FACTORS OF DOWNTURN

Sharp increase in fiscal deficit during 2008 to 2010 due to: Low tax base and tax buoyancy

Increase in domestic debt servicing cost resulting fromrise in domestic interest rates during April to December2008

Provision of large subsidies on domestic consumption


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INCREASET

AXES

1. All means of income should be taxedThis increases tax revenues

Reduces Budget Deficit2. All withholdings on debt instruments should be for

companies including non-resident companies


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GOVERNMENT

SECURIT

IES

The state bank should reduce the maturity time of aTreasury Bill rate

1. Longer maturities entail greater risk for the investor2. Even if the market expects more instability in future,the increase in risk premium can influence the investors

decisions


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ACCELERAT

ING ECONOMIC GROWT

H

The Government must invest in development activities thatincrease its productive capacity rather than in non-developmental projects

1. Overall income of the people increasesAbility to pay higher taxes

Budget Deficit falls and hence the debt

2. Also an increase in production means a rise in GDP


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ATT

RACT

F

OREIGN CAPIT

AL

Increase the rate of return on foreign capital, i.e. decreasethe interest ratesBut other important factors that improve investors

confidence1. Stable political situation

Consistent policies

2. Economic stability


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HIGHER EXPORT

S AND REMITT

ANCES

1. National Income rises2. More Foreign Exchange


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DEBT

CAPIT

AL MARKET

S COMMITT

EE REPORT

2007http://www.secp.gov.pk/Reports/May_DebtCapitalMarketReport.pdf

http://www.pakistantalk.com/forums/economy/4044-

effective-strategy-reduce-size-domestic-external-debts.html

PAKISTANS PUBLIC DEBT REPORT 2007

http://www.adb.org/Documents/Reports/PRM-Policy-Notes/Pakistan-Public-Debt.pdf


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T

HE DEVELOPMENT

OF

T

HE DEBT

MARKET

INPAKISTANhttp://www.pakistaneconomist.com/database2/cover/c98-

24.asp

CAPITAL INFLOWS AND NATIONAL DEBT byEATZAZ AHMADhttp://www.pide.org.pk/pdf/PDR/1996/Volume4/943-960.pdf

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