Defense Expenditures in Pakistan: A Source of Stimulus for or Competition With the Private Sector
Abstract
Toward the end of 1988, Pakistan's deteriorating resource situation caused a financial crisis, many remnants of which still exist today. In 1988 the Government's budget deficit reached 8.5% of Gross Domestic Product (GDP), inflation accelerated, the current account deficit doubled to 4.3% of Gross National Product (GNP), the external debt service ratio reached 28% of export earnings, and foreign exchange reserves fell in half to $438 million, equal to less than three weeks of imports.! These developments have eroded the ability of the government to affect the country's development process. 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 between the government's three most important budgetary items: defense, public consumption and infrastructural development. More importantly because 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, 1994
- Accession Number
- ADA529458
Entities
People
- Robert E. Looney
Organizations
- Government College University