Fiscal Policies of Pakistan and Kazmi's Hypothesis (Monetary AND FISCAL Issues) (Report‪)‬

Pakistan's economy has registered a growth rate of above 5 percent on an average basis for the period 1980-98. However, this growth performance has synchronised with numerous macroeconomic imbalances such as large stock of public debt, rising share of debt-servicing in public expenditure, lower level of aggregate savings, and large saving-investment and export-import gaps etc. Whereas fiscal deficit as a ratio of GDP is declining, this has been achieved by drastically curtailing the development expenditure which is likely to undermine the long-term growth prospects of Pakistan. The central issue in fiscal management in Pakistan relates to the persistently rising deficit in the revenue budget and the declining public sector savings to finance the development expenditure. By developing upon the earlier studies such as Kazmi (1981) and Kazmi (1985) which were based on an innovative concept in public finance i.e. Resource Base Co-efficient (RBC), the paper attempts to revalidate the basic logic of Kazmi's Hypothesis on Fiscal Efficiency postulated in 1981. The Hypothesis postulates: "If the resource base co-efficient of a country, after incorporating the effect of new budgetary measures, remains below the critical minimum limit of 20 percent for a given period, that country would fail to meet one of the basic conditions of fiscal efficiency. By implication, the magnitude of the resource base co-efficient which is defined as the ratio between the surplus in the revenue budget and the public sector development outlays would reflect the relative efficiency of the fiscal system of a country". **********