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Fiscal Policy

GROUP MEMBERS
1.

Ambreen Abbas

F13ba138

2.

Hina Zaheer

F13ba139

3.

Saira Asad

F13ba119

4.

Sundas Tahir

F13ba112

What is Fiscal Policy?

Fiscal policy is the means by which a government adjusts its spending levels
and tax rates to monitor and influence a nation's economy.

It is the sister strategy to monetary policy through which a central bank


influences a nation's money supply.

Fiscal policy can be distinguished from monetary policy, in that fiscal policy
deals with taxation and government spending and is often administered by an
executive under laws of a legislature, whereas monetary policy deals with the
money supply, lending rates and interest rates and is often administered by a
central bank.

Objectives of Fiscal Policy

The following are the objectives of fiscal policy:

1.Full employment: To maintain and achieve full employment.

2.Price stability: stabilize the price level.

3.Redistribution of wealth: To stabilize the growth rate of the economy.

4.Equilibrium in BOP: To maintain equilibrium in the balance of payments.

5.Economic Development: To promote the economic development of


underdeveloped countries.

Fiscal Policy for Economic Growth

The role of fiscal policy for economic growth relates to the stabilization of the
rate of growth of an advanced country.

Fiscal policy through variations in government expenditure and taxation


profoundly affects national income, employment, output and prices An
increase in public expenditure during depression adds to the aggregate
demand for goods and services.

Reduction of public expenditure during inflation reduces aggregate demand,


national income, employment, output and prices.

Thus the government can control deflationary and inflationary pressures in the
economy by a judicious combination of expenditure and taxation programs.
For this, the government follows compensatory fiscal policy.

Instruments of Fiscal policy

Government Expenditure (G)

Taxes (T)- both direct and indirect

Deficit Financing

Subsidies

Transfer payment like pension, scholarship, unemployment allowance.

Role of fiscal policy in income


determination

How can government expenditure and taxation be used to affect the level of
economic activity?

The government can use fiscal policy (tax, expenditure and borrowing measures)
through the budget to affect the overall level of economic activity.

The basic idea is simple.

If the government calculates that there is likely to be a deflationary gap (i.e.


where the overall level of spending is too low to maintain national income at an
appropriate high level), then they should aim to increase injections in the
economy.

This can be done through increasing government expenditure (without increasing


taxation) e.g. through borrowing, or alternatively reducing taxation (without
reducing government expenditure).

(Cont.)

This is known as expansionary fiscal policy and is usually associated with the
running of budget deficits.

Alternatively if there is already too much spending in the economy leading to


n inflationary gap, then the government should aim to increase withdrawals.

Again this can be done in two ways - reducing government expenditure


without reducing taxation, or increasing taxation without increasing
government expenditure.

This generally leads to a surplus on the budget account.

This deliberate use of the budget to influence economic activity is known as


discretionary fiscal policy.

Fiscal policy of Pakistan budget 2015

Pakistan Atomic Energy Commission (PAEC) budget has also been reduced from Rs59.3
billion to Rs30.4 billion for the new fiscal year.

According to a copy of the Budget in Brief document, a total of Rs.1514 billion have
been allocated for Public Sector Development Projects (PSDP)

Out of which Rs.700 billion have been set aside for federal development projects

And the remaining Rs.814 billion for provincial development projects.

The developmental budget of Baluchistan is Rs.45 billion.

Khyber Pakhtunkhwa (KP) budget for development projects is Rs.124 billion.

The developmental budget of Sindh has been set of Rs.192 million.

A sum of Rs.1150 billion has been allocated for debt servicing- both internal and
external.

(Cont.)

According to details, the government has set a 5.5 percent economic growth
target for the fiscal year 2015-16.

Trade deficit stays at $17.70 billion, while the government is expected to set
a $43.30 billion import target.

Economic issues and their solutions

One thing sure that there will be no increase in the income of ordinary man.
The number of poor men will also increase in Pakistan.

In 2011 the population was 175 million this means that some 70 million
people will live in absolute poverty.

It also means that more than 40 percent of population of Pakistan will be in


absolute poverty.

The main reason is most of these poor people live in urban areas and towns
and they have less opportunity as compared with country side poors.

Economic problems

Economic Loss Due To War On Terrorism

Energy Crisis

Low FDI And Huge Debt Trap

Poorly Managed Tax System

Low Export And High Import

Inflation

Influx Of Local People From War Ridden Areas And Their Rehabilitation

Lack Of Tourism

Solutions

The gap between rich and poor must be decreased by ensuring equal
distribution of wealth

Dispensation of free and quick justice be ensured by strengthening judiciary

There is a sheer need to curb corruption at all levels. the institutions of NAB
and FIA should be made more powerful to curb corruption

The curriculum of schools need to be reviewed so that children can receive


scientific and secular education in their mother tongue. Moreover there is a
need to develop critical and creative thinking

(Cont.)

Health care education and free health care needs be provided to all citizens

Provisions of equal rights to all citizens especially women and minorities be


ensured

Poverty alleviation programs be initiated to reduce poverty and child labor

Population growth is controlled by spreading awareness about the advantage of


small families among the masses through media

Energy crisis must be resolved priority basis to revitalize the dying economy

New dams should be built and new methods of producing electricity should be
utilized

Youth be equipped with technical education and new industries be set up to


provide employment.