ECO401 GDB Spring 2012 solution

Pakistan’s finance minister Dr. Abdul Hafiz Sheikh presented federal budget 2012-13 on June 01, 2012. The total outlay of budget 2012-13 is Rs. 3,203 billion which is 15.8% higher than the size of previous budget 2011-12. Comparison of two budgets reveals that the total government expenditures have increased by 15.20% from Rs. 2,835,373 million to Rs. 3,266,307 million out of which development expenditures have increased by 25.83% from Rs. 354,872 million to Rs. 446,539 million.  According to Economic theory, if government expenditures increase, generally economy flourishes but Pakistan is an exception to the rule. In every budget, government expenditures increase but our economy is not showing any positive response. This budget has also been presented in a situation when the condition of our economy is not at a satisfactory level. Despite increase in government expenditures, Pakistan economy has been facing unemployment, acute energy crisis, inflation, poverty and trade deficit for many years.


Think as an economist and discuss the reasons why is Pakistan economy not showing any positive change despite the increase in government expenditures?

Idea Solution:

There are many causes that why Pakistan economy is not showing any changes despite the increase in government expenditures some of them are,

– Our government expenses are very high as compare to any European country, living standard of our prime minister, president etc. If president or Prime minister has to visit foreign country he can go with minimum staff not with 50 – 80 persons, who will paying? We ……..

– Many businessmen do not make investment in Pakistan because of corrupt politician, because they want bribe before entering them in Pakistan.

-In Pakistan minimum salary is Rs. 9,000, how one family can live? They have to pay many bills of like electricity, gas and also the prices of basic needs are out of reach.

– Our three main national institutes, PIA, Pakistan Steel Mill and Railway, all are going in loss,

– We are bearing loss about 90 crore in a month by Railway.

-PIA , Rs 70 million loss average per day from January 2011 to September 2011.

– Pakistan Steel Mills has observed irregularities, shortage of material and other financial losses of Rs3.66 billion during 2011/12

when main institutes are going in loss, how the economy of country can increase?

According to a survey by Transparency International the corruptions factors are as follows in percentages:

• Lack of transparency (9.9%)

• Power of influential people (4.6%)

• Monopoly of power (16.4%)

• Lack of Accountability (31.7%)

• Low salaries (16.5%)

• Discretionary powers (12.6%)