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Economic Planning in Pakistan 

Monetary and Fiscal & policy of Pakistan 

What is Monetary Policy????

•  Branch of economic policy which is concerned with the regulations

o  of the availability or supply of money.

o  Costs and directions of credit

o  Credit control Function.

Quantitative Controls

•  Bank Rate Policy

•  Open Market Operations

•  Variable reserve ratios

•  Liquidity Ratio•  Credit Rationing

•  Selective credit control

•  Maximum Limit

•  Selective bans

•  Mandatory targets

•  Cost of Finance

•  Margin Requirements

Qualitative Controls

o  Moral Appeals or warnings

o  Publicity

o  Margin in securities Rates

Difficulties in Controlling Credit

o  Absence of developed money market

o  Existence of non-monetized sector

o  Large scale deficit –Financing

  Co operations of bank

  Conflicting objectives  Conventional techniques

  Credit Ceilings

  Selective controls

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State Bank of Pakistan As Controller of Credit

o  Objectives of Credit Control

o  Instrument of Credit Control

  Quantitative Controls

o  Bank rateo  Open Market operations

o  Variable Reserve Requirement

  Qualitative Controls

Fiscal Policy of Pakistan

o  What is Fiscal Policy 

o  Objectives 

  Full Employment

  Resource Mobilization

  Resource Allocation

  Maintenance of Economic stability

  Income Redistribution

Tools of Fiscal Policy 

Government Expenditure

Taxes

Causes of increase in Government Expenditure 

o  Increase in area and population

o  The higher price level

o  Increase in national wealth Full Employment

o  War and prevention of war

o  Incidence of democracy

o  Defective financial and civil administration

o  Planned economic development

Classification of Government Expenditure

  Current Expenditures

  General administration

  Defence Expenditure

  Law and order

  Community and Economic services

  Subsidies

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  Debt Servicing

  Capital Expenditure

  Development Expenditure

  Non Development Expenditure

Classification of Taxes

  Propotional and Progressive Taxes

  Regressive and Digressive Taxes

  Specific and Ad valorem tax

  Direct and indirect taxes

  Major Types of taxes

  Income tax

  Custom duties

  Sales Tax

  Excise Duty

Other Sources of Revenue in Pakistan

  Non Tax Revenue Source

  Income from Property and Enterprises

  Post office and Telegraph

  Trading Profit

  Interest Receipt

  Surcharge

Public Finance

Definition 

“Is the branch of Economics which studies the revenue and expenditure of Government’s institutions,

their inter-relationship and financial administration”

Public Vs Private Finance

Similarities between Public and Private Finance:

•  Balance between income and expenditure

•  Maximum Utilization of Scarce Resources

•  Need of Loans

•  Increase in Income with the help of Investment

Differences between Public and Private Finance 

•  Adjustment of Income and expenditure

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•  Budget Period

•  Secret and Open Budget

•  Internal Loans

•  Future Planning

•  Extraordinary Changes

•  Surplus Budget

•  Deficit Budget

•  Difference in Objectives

•  Record of Finance

•  Foreign Aid

Sources of Public Revenue in Pakistan

•  Taxes

•  Fee

•  Price

•  Special Assessment

•  Productive works of the Government

•  Government Property

•  Fines

•  Confiscation of Securities

•  Receipt of Loans and Interest

•  Gifts and Aids

•  Properties of Heirless

•  Local Rates

Heads of Public Expenditure in Pakistan

  Defence

  Police

  Civil Administration

  Courts

  Public Health

  Public Education

  Means of Transport

  Irrigation

  Interest on Loans

  Subsidies

  Foreign Affairs

  Social Welfare

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Canon of Taxation

1.  Canon of Equality

2.  Canon of Certainty

3.  Canon of Economy

4.  Canon of Convenience5.  Canon of Productivity

6.  Canon of Simplicity

7.  Canon of Elasticity

8.  Canon of Economic Development

9.  Canon of Diversity

Principles of Public Expenditure

1.  Principle of Maximum Social Welfare

2.  Principle of Economy

3.  Principle of Flexibility

4.  Principle of Sanction

5.  Principle of Balanced Budget

6.  Overall Effects

7.  Effects on Production and Distribution of National Income

Public Finance

Kinds of Taxes

  Direct Taxes

  Indirect Taxes

  Proportional Taxes

  Progressive Taxes

  Regressive Taxes

  Value- Added Tax

Balance of Trade

  The balance of trade (or net exports, sometimes symbolized as NX ) is the difference between

the monetary value of  exports and imports of output in an economy over a certain period.

  It is the relationship between a nation's imports and exports.

  A positive balance is known as a trade surplus if it consists of exporting more than is imported; a

negative balance is referred to as a trade deficit or, informally, a trade gap.

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Balance of Payment

  Balance of payments (BOP) accounts are an accounting record of all monetary transactions

between a country and the rest of the world.

  These transactions include payments for the country's exports and imports of  goods services, 

financial capital, and financial transfers. 

  The BOP accounts summarize international transactions for a specific period, usually a year, and

are prepared in a single currency, typically the domestic currency for the country concerned. Including

  Services of companies

  Expenditure on Political, Cultural, and Trade Delegation

  Expenditure on Tourism

  Expenditure on Education and Training

  Expenditure on Embassies

  Interest on Foreign Loans

  Profit on investment

  Un-Requited Private and Official Transfers

 Three parts of the Statement of Balance of Payment

1. Current Account

  Balance of Trade

  Services[net]

  Un required private and official transfers

2. Capital Account

A.  Long term net foreign investment

  Private investment[net]

  Government /Public investment[net]

B. Allocation of SDRs

C. Official borrowing

  Short term net foreign public investment

  Balance of Payment borrowing

D. Errors and Omissions [net]

3. Changes in the gold and foreign reserve assets

Causes of Persistent Deficit in the Balance of Payment

  Relatively high rate of inflation

  Trade Restrictions by other Countries

  Deterioration of terms of trade

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  Demand of Machinery, Oil ,and industrial goods by LDCs is inelastic

  Depression in the international market

  Foreign Loans

  Slow increase in the Factors of Production

  Introduction of the Substitute

  Change in the Production of Technology  Changes in Capital Movement, Fashion and Taste

Measures to Rectify Adverse Balance of Payments

  Strict Monetary and Fiscal Policies

  Policy of Protection

  Reduction in Capital Exports

  Exchange Control

  Depreciation/Devaluation of Currency

  Export Subsidies

  Encouraging Import of Capital

 Role of IMF