Fiscal Policies of Pakistan and Kazmi's Hypothesis

Pakistan has maintained an average GDP growth rate of about 5.5 percent during the period 1981-98. An analysis of the growth experience of Pakistan, however, indicates that some basic macroeconomic imbalances have been built in the economy during this period, which have serious implications for long-term sustainability of the economic growth of the country. The growth performance of Pakistan has synchronised with declining rate of domestic savings, erratic and inconsistent variations in the national savings ratios, low level of domestic investment and excessive dependence on the external resource inflow (current account deficit) to finance the gap between national savings and the level of gross investment. In other words, Saving-Investment and Import-Export Gaps in the economy have widened during this period. These macroeconomic imbalances have been highlighted from time to time in numerous studies such as Burki (1996, 1998); Hasan (1998); Hussain (1999); Kazmi (1991, 1994, 1998); Papanek (1996) and Qureshi (1989). Pakistan's national savings as a percentage of GDP, have fluctuated around a low level of 14 percent with a downward trend in 1990s while the private savings during the period 1981-98 have failed to register any significant upward movement. Since the public sector investment has been a multiple of the level of public savings, the public sector continues to draw heavily from the private savings, and to supplement these savings through internal and external borrowings, as well as deficit financing. The critical factor in public finance and fiscal management of Pakistan is the growing deficit in the revenue budget which also is the main cause of the low public sector savings.