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ECO401 GDB 2 Solution & Discussion Last Date: 07-08-2015
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The economy of Pakistan is the 26th largest in the world in terms of purchasing power parity (PPP), and 41st largestin terms of nominal Gross Domestic Product. As Pakistan has a population of over 186 million (the world's 6th-largest), thus GDP per capita is $3,149 ranking 140th in the world. Pakistan is a developing country and is one of theNext Eleven, the eleven countries that, along with the BRICs, have a potential to become one of the world's large economies in the 21st century. However, after decades of war and social instability, as of 2013, serious deficiencies in basic services such as railway transportation and electric power generation had developed. The economy is semi-industrialized, with centres of growth along the Indus River. Primary export commodities include textiles, leather goods, sports goods, chemicals and carpets/rugs
“The large set of inter-related economic production and consumption activities which aid in determining how scarce resources are allocated”
“the state of a country or region in terms of the production and consumption of goods and services and the supply of money.”
With the revelation of the Pakistan Economic Survey 2014-2015 ─ essentially a scorecard of the economy’s performance over the current fiscal year ─ and the much-awaited
Sure, we may have missed a variety of ‘targets’ last year ─ and one of the government’s more popular rationale for doing so is the four-month-long country-wide sit-in by the Pakistan Tehreek-i- presentation of the FY15-16 budget to the cabinet, there has been a lot of talk about missed targets. Insaf last year ─ but I believe the government’s performance over the past year has been, on the whole, fairly good, with what seems to be a similar forecast for the upcoming year.
The PML-N government has typically set ambitious growth targets for itself over the course of its tenure ─ which the previous government also did ─ and while both governments have missed their growth targets, the gap between the expected and achieved growth rate is much wider during the PPP government than during the PML-N’s tenure. To be fair, though, the previous government had to deal with the aftershocks of a global financial crisis.
Despite missing GDP growth targets, the current government has maintained a consistently higher GDP growth rate over the past two years, while the previous government’s growth rate has seen severe fluctuations.
It is worth mentioning, however, that the government's current projections for a 7 per cent growth rate by the end of their tenure are somewhat far-fetched, as successive governments have regularly touted the magical number seven as a GDP growth target.
Why we love to hate the government
An observation I’ve made over the past few years is that people love to hate the government for their defence budget allocation; this happens every year. It’s the one statistic everyone keeps an eye out for.
Our defence budget may have increased 11 per cent in FY15-16, taking up 16.6 per cent of total expenditure, but it still lags behind general public services (28 per cent of total expenditure) and debt services (31 per cent of total expenditure).
Comparing absolute values reveals a sharp disparity between defence and education expenditure ─ a comparison many people are quick to make ─ with defence expenditure rising to an estimated Rs 781 billion for the coming year, while education has been allocated Rs 75.5 billion.
Data taken from Budget in Brief publications.
While it may, on the surface, seem entirely unreasonable for defence to be allocated such a large portion of the budget compared to education, it is important to consider the context within which these funds have been allocated for the budget.
Pakistan has been ‘fighting wars on many fronts’ for many years now ─ but it is only recently that the government and the army seem to be taking counter-terrorism seriously, as evidenced by the recent surge in operations in various sensitive areas of the country, the implementation of Zarb-i-Azb and the National Action Plan, as well as cracking down on terrorism in urban areas ─ more specifically, Karachi ─ as was noted in a recent meetingof military top brass.
Another reason it doesn’t make sense to inject a whole lot of funds into education right away is the law of diminishing marginal returns ─ those funds will only be as useful as the infrastructure and systems that utilise them ─ and those systems are far from perfect at the current time.
Plying education with a large portion of total expenditure may result in inefficiency and misuse of funds across the board due to institutional problems in the sector that need to be addressed before the money can be used the way it should be.
Comparing budgeted education expenditure for the forecasted year with historical data, we find that estimated education expenditure has increased steadily over the 2008-2016 time period.
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Eco401's GDB Solution: The government on Friday presented budget for the fiscal year 2015-16 with a total outlay of Rs. 4451 billion. Total resources - tax revenue, non-tax revenue, other income and loans - have been estimated at Rs. 4168 billion. Estimated current expenditure is Rs. 3128 billion, and despite imposing new taxes to the tune of Rs. 253 billion, there will still be fiscal deficit of 1328 billion, which is 4.3 per cent of the GDP. While placing the budgetary proposals before the National Assembly, Finance Minister Ishaq Dar said the government considers tax increase a pre-condition for the economic growth, but he maintained that the burden of changes would not fall on the poor, which is stated by every finance minister. He said exemptions worth Rs 120 billion given under different SROs vis-a-vis customs, sales tax and income tax are being withdrawn. There is a package of incentives for construction sector; bricks and crush is being exempted from sales tax for three years so as to bring down the cost of construction. The target for GDP growth rate for the next fiscal year has been kept at 5.5%, which would be taken to 7% by 2017-18. Inflation would be kept to single digit, investment-to-GDP ratio at 21%, fiscal deficit 3.5% and tax-to-GDP ratio at 13%. The minister announced a PSDP amounting to over Rs. 1513 billion, out of which Rs. 700 billion has been earmarked for the development projects to be carried out by the federal government, while Rs 814 billion will be disbursed among the federating units for their development programmes. It is hoped that unlike in the past the provinces would utilize those funds so that the people could benefit from development. Finance Minister announced 7.5% increase in the salaries of federal government employees besides merger of two previous ad-hoc relief allowances into the pay scales. Medical allowance has been increased by 25% and minimum wages have been increased from Rs. 12,000 to Rs. 13,000 for the labour class. Government servants in general have rejected this increase, as there is no guarantee that oil price in the international market will not increase, and general price index will remain the same. In fact, the prices of flour, edible oil, ghee, vegetables have not shown a downward trend, and as once the prices increase they never come back to the previous level. The government in its wisdom views increases in salaries and pension reasonable because of decline in inflation. But the prices of essential and increase in gas and electricity tariff as dictated by the IMF will make lives of the people more difficult. Tax on agriculture has not been imposed on landed aristocracy this year as well. In fact, ruling and opposition parties\' members gang up against the imposition of tax on agricultural land and vow not to pay this tax. Unfortunately, Pakistan has overwhelmingly remained a feudal society where 70 per cent of our people are virtually in the clutches of jagirdars, vederas, pirs and sardars, who still wield enormous power. It should be noted that agriculture sector contributes about 24 per cent to Gross Domestic Product but has been contributing to the exchequer from 1 percent to 5 per cent tax, yet landed gentry resists imposition of tax on agriculture. Having that said, the budget 2015-16 is a traditional budget, which gives concessions to the rich and no relief to the poor. It reflects continuation of the policy and the concept that with industrialization a lot of money will be generated at the top, and there will be trickle-down effect, which would benefit the poor. The total outlay of the budget 2015-16 is Rs.4,451.3 billion. The size of the outlay is 3.5 percent higher than the size the budget estimates of 2014-15. The resource availability during 2015-16 has been estimated at Rs.4,168.3 billion against Rs.4,073.8 billion in the budget estimates of 2014-15. The net revenue receipts of 2015-16 have been estimated at Rs.2,463.4 billion, indicating an increase of 10.7 percent over the budget estimates of 2014-15. The provincial share in federal taxes is estimated at 1,849.4 billion during 2015-16, which is 7.5 percent higher than the budget estimates for 2014-15. The net capital receipts for 2015-16 have been estimated Rs.606.3 billion against the budget estimates of Rs.690.7 billion in 2014-15 a decline of 12.2 percent. The external receipts in 2015-16 are estimated at Rs.751.5 billion which shows an increase of 12.2 percent. The overall expenditures during 2015-16 has been estimated 4,451.3 billion, out of which the current expenditure is Rs.3,482.2 billion and development expenditure is Rs.969 billion. The share of current and development expenditure respectively in total budgetary outlay for 2015-16 is 78.2 percent and 21.8 percent. The expenditure on general public service is estimated at Rs.2,446.6 billion which is 70.3 percent of the current expenditure and The other development expenditure outside PSDP for 2015-16 has been estimated at Rs.164.4 billion. (APP)