Question

a. what gave rise to fiscal deficit in Pakistan? Why was it so difficult to reduce?

b. Does fiscal deficit still exist in Pakistan? If yes, then suggest measures to reduce it?

Answer 1

A.

There is a huge gap between imports and exports that has increased the spending, but reduced the scope of earning revenues. To bridge the gap between revenue collection and expenses, the government takes loans. Later on, the government pays more interest and principals that further increase the government spending. As a result, every year, the budget deficit continues to increase and cause the economy to suffer. Besides, the lack of robust growth in the economy and poor taxation structure, don’t give boost the tax collection of the government. It also contributed to the growing budget deficit in Pakistan.
It was difficult to reduce because the tax revenues were not increasing due to poor economic conditions. A poor demand scenario caused poor supply and less tax deposits took place. The pattern continued to be the same every year and the economy suffered due to the big size of the budget deficit. The excessive reliance on grants, financial assistance and loans, rather on self-development initiatives, worsened the situation in the economy of Pakistan. Foreign investors came, but on their own terms and the further exploited the economy of Pakistan. As a result, the revenue part did not increase significantly, but spending part increased and budget deficit continued and was very difficult to reduce.

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