Military Expenditures and Fiscal Constraints in Pakistan
Abstract
Toward the end of 1988, Pakistan's deteriorating resource situation caused a financial crisis, remnants of which still exist today. In 1988 the government's budget deficit reached 8.5 percent of Gross Domestic Product (GDP), inflation accelerated, the current-account deficit doubled to 4.3 percent of Gross National Product (GNP), the external debt-service ratio reached 28 percent of export earnings, and foreign exchange reserves fell in half to $438 million, equal to less than three weeks of imports. These developments eroded the government's ability to affect the country's development. In fact, the encouragement of private-sector activity, particularly investment, is the only viable option open to the authorities. It follows that for policy purposes the most important issue involves restructuring government expenditures and their financing in a manner that would provide the maximum inducement to private sector capital formation, especially in manufacturing. Operationally, this means finding an optimal balance among the government's three most important budgetary items: military expenditures, public consumption, and infrastructure development. More importantly, since there is abundant evidence that the government's deficits have crowded out a certain amount of private investment, the authorities must achieve this balance within the context of a reduced level of expenditures and/or tax increases.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jan 01, 1988
- Accession Number
- ADA529282
Entities
People
- Robert E. Looney
Organizations
- Naval Postgraduate School