47. Pakistan Economic Survey 2011-12 - Consultancy Services in ...

Chapter 4Fiscal DevelopmentThe importance of a prudent fiscal policy cannotbe overruled as it supports economic activitythrough sustainable growth and poverty alleviation.The effective implementation of the policyendeavors to mobilize resources through taxes andpublic savings, which can fund much neededpublic goods and services. It also helps to correctfiscal imbalances as well as promote investmentand growth by optimal allocation of resources andthrough improving the tax system. Consequently, awell structured fiscal policy ensures rapideconomic growth and development in the country.The global financial crisis and the policy responsesof the governments around the world exemplifiedthe potential role for fiscal policy to stabilize theglobal economy and to avert an employmentcollapse of the type witnessed during the greatdepression. However the current global economicenvironment is characterized by a fragile financialsystem, high public deficits and mounting debts.Global output is expected to increase by only 3.5percent in 2012 as compared to 4 percent in 2011on account of the significant rise in sovereignvulnerabilities and deteriorated financial conditionsin the advanced countries 1 . Going forward, theemerging and developing countries are alsoexpected to witness sluggish growth due to theworsening external environment and theweakening of internal demand. Accordingly,sustained adjustment, ample liquidity and easymonetary policy and most importantly restorationof confidence are urgently required for sustainedeconomic recovery.Pakistan’s economy, which largely remainedimpervious to the global financial crisis due to itslower exposure to international finance, facedmultifaceted challenges on external and internalfronts mainly campaign against extremism,unstable law and order situation, lingering energyshortages and non materialization of externalinflows. Additionally the unprecedented calamityof floods in 2010 and torrential rain in Sindh in2011 contributed further stress on the economy.However, the fiscal situation was well contained.Efforts to manage the fiscal deficit withinacceptable level through an expendituremanagement strategy, austerity measures andreforms in public sector enterprises (Box-1) haveyielded results. The fiscal deficit declined from 7.6percent in FY08 to 5.9 percent in 2010-11. In2011-12 the fiscal deficit was projected to be 4percent of GDP (Rs. 851 billion). Nevertheless,during the course of the period the projection forfiscal deficit has been revised to 4.7 percent.However, achievement of this revised targetdepends crucially on the realization of theenvisaged surpluses from provincial governments,the non-tax revenues which depends on inflowsinto the Coalition Support Fund, and strict controlover expenditures.1Global Economic Outlook , April, 201251