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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
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