Government Borrowing

and its effects on the economy.

Prepared By
Nouman Ahmed Pathan (57087) Noureen Fatima (56234) Hafiz Faizan (55472) Abdul Qadir (57020)

Government Borrowing
Government Borrowing/debt (also known as public

debt and national debt) is the debt owed by a central government.

Sources of Borrowing
By issuing securities, government bonds and bills. Borrow directly from a supranational organization (e.g.

the World Bank) or international Financial Institutions.

Types of Borrowing
Government borrowing can be categorized as;
INTERNAL BORROWINGS (owed to lenders within the

country) and EXTERNAL BORROWINGS (owed to foreign lenders).

Division of government Borrowing

Short Term Borrowing Long Term Borrowing

Why does Government Borrow?

1) Tax revenues are less than predicted:
To meet a temporary shortfall by borrowing.

2) Automatic fiscal stabilizers:

In an economic downturn, borrowing rises.

3) Investment:
Building schools, hospitals, better roads.

Why does Government Borrow?

4) Its Cheap:
Governments can usually borrow at very low interest rates, especially during an economic downturn.

5) Political. 6) War.

How do Governments Repay Debts

Taxes:
Taxes are classified into two broad categories; 1) Direct and 2) Indirect taxes.

Taxes
Direct Tax
Direct taxes primarily comprise income tax, along with supplementary role of wealth tax and Includes; Salaries Interest on securities Income from property Income from business or professions Capital gains; and Income from other sources

Current Debt of Various Countries

The Current Outstanding Public Debt of the United States

$17,203,336,836,345.12 JAPAN $1149.1 billion dollars BRAZIL $252.9 billion dollars SWITZERLAND $179.7 billion dollars UNITED KINGDOM $159.1 billion dollars
is

Debt Situation In Pakistan 2013

The countrys public debt will cross the

Rs.14 trillion Every Pakistani owes Rs. 57000/- in Debt!

Government Debt in 2013

Rs. in Billion

8,796 External Debt 4,831 Total Public Debt 13,627

Domestic Debt

Sources of Borrowing
Government of Pakistan Borrows from:

1) State Bank of Pakistan

Rs. 804 Billion. Out of which retired Rs. 127 Billion.

2) International Monetary Fund (IMF)

$ 6.6 Billion. Out of which 260 Million has been retired during this as loan repayment.

Foreign Reserves of Pakistan

Details Of Liquid Foreign Reserves Of The Country As On 01

11 2013 ( Amount In Million ) Foreign Reserves Held By State Bank Of Pakistan : $ 4,224.5. Net Foreign Reserves Held By Banks ( Other Than SBP ) $ 5,285.3. Total Liquid Foreign Reserves $ 9,509.8.

Amount Borrowed

$6.6 Billion

International Monetary Fund

Through its economic surveillance, the IMF keeps track of the

economic health of its member countries, alerting them to risks on the horizon and providing policy advice. It also lends to countries in difficulty, and provides technical assistance and training to help countries improve economic management.

This borrowing by the government of Pakistan is hitting the GNP of the country very badly.

Loan From IMF

Pakistan Gets $6.6 Billion Loan from IMF to stabilize the

economy and boost growth while expanding its social safety net to protect the poor.

Reasons for the Loan

Pakistan faces slow growth, declining reserves, increasing fiscal

deficit. And measures to protect the most vulnerable and create jobs.

Disadvantages

Conclusions
If we see Pakistan, then it is the nation which mainly relies

upon external sources for its needs, and hardly tried to increase investment and try to open other avenues for the needs. Now it increased so much that country is unable to get rid of it, and it is the main hurdle in growth of nation, because round about 40 percent of government revenue is needed to pay debt servicing and interest rate on it.
Due to low tax base and twin deficits, Pakistan has to rely on

both external and internal capital flows. The foreign capital flows are not easily accessible but domestic capital flows are approachable at all times.

Conclusions
Investments are reduced while exports are increased. Pakistan

has accumulated a large amount of public debt in order to fulfill its deficits. Now, service on these debt has become the main hurdle in the way of development and growth.
While recent research shows that if a country want to grow

and be economically better off than it should committed it not to involve with IMF loan programs.