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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
8/7/2019 final fresentation GOVERNMENT DEBT
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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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8/7/2019 final fresentation GOVERNMENT DEBT
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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
WIKIPEDIA