An Analysis of the Management of Fiscal Deficit of Pakistan: An Econometric Study of Auto-Regressive Distributive Lags (Ardl) Approach

Chandia, Khurram Ejaz; Iqbal, Muhammad Badar; Aziz, Saira; Gul, Ifra; Sarwar, Binesh

doi:10.1142/s0217590818500352

Cited by 4 publications

(6 citation statements)

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“…Moreover, it is also worthy to mention and seek guidance from the recommendations suggested by the recent study of Chandia et al (2018). The work of Chandia et al (2018) has recommended the need for extensive fiscal policy reforms for the control of budget deficits. The budget deficit in case of both Pakistan and India cannot be reduced without reforms process.…”

Section: Conclusion and Policy Implicationsmentioning

confidence: 99%

Assessment of Public and External Debt Sustainability Using Debt Dynamics Equation Approach: A Comparative Study of Pakistan and India

et al. 2019

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The study examines the sustainability of public and external debt burden of Pakistan and India for the period 1971–2017. The debt dynamics equation for public debt uses two components for the analysis of public debt sustainability, namely, interest rate–growth rate differential and differential of primary budget balance-to-GDP and change of reserve money-to-GDP ratio. The equation for external debt dynamics also uses two components for the assessment of external debt sustainability, namely, current account balance-to-exports ratio and differential of exports growth and interest rate. The significance of the approach used in the current study lies in the fact that in case of evaluation of countries’ debt sustainability, it is quite necessary to monitor debt trends along with emerging domestic and external vulnerabilities and systemic risks that threaten debt sustainability. This phenomenon has been captured through debt dynamics approach, which is used in the current study. The results are based on the estimation of two equations, namely, debt dynamics equation for overall public debt sustainability and debt dynamics equation for external debt sustainability. The results of the study indicate that primary budget deficit and current account deficit have played a significant role in the accumulation of public debt and external debt, respectively in Pakistan and India. The study concludes that public debt and external debt of Pakistan and India are sustainable but in a weak form.

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Section: Conclusion and Policy Implicationsmentioning

confidence: 99%

Assessment of Public and External Debt Sustainability Using Debt Dynamics Equation Approach: A Comparative Study of Pakistan and India

et al. 2019

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“…The current study could be helpful in initiating the research on the potential reforms which could be possibly helpful for overhauling the macroeconomic ills and fiscal structure of the economy, which could solve the problems of the common people of Pakistan. Though there is an abundance of empirical research (Chandia et al ., 2018a, b; Chandia et al. , 2019) suggesting the need for reforms in the fiscal structure of the economy, the actual frameworks and experimental results are missing which could be helpful in generating real-time results at macro-level.…”

Section: Discussionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 96%

“…This study emphasizes that the macroeconomic and macro-fiscal dynamics of advanced and developing countries are much different from each other and the same framework cannot be uniformly applied to developing and advanced countries (Chandia, Gul, Aziz, Sarwar, & Zulfiqar, 2018a;Chandia, Iqbal, Aziz, Gul, & Sarwar, 2018b). The study of Schaechter et al (2014) focused on country groups (advanced countries) for vulnerability assessments and calls for the need to focus on developing countries with an agreement that vulnerability assessment will remain incomplete if it focuses on a group of countries and ignores the individual country analysis.…”

Section: Introductionmentioning

confidence: 99%

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An analysis of the linkages among fiscal vulnerability, financial stress and macroeconomic policies: an econometric study

Chandia

Iqbal

Bahadur

2022

FREP

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PurposeThis study aims to analyze the imbalances in the public finance structure of Pakistan’s economy and highlight the need for comprehensive reforms. Specifically, it aims to contribute to the empirical literature by analyzing the relationship between fiscal vulnerability, financial stress and macroeconomic policies in Pakistan’s economy between 1971 and 2020.Design/methodology/approachThe study develops an index of fiscal vulnerability, an index of financial stress and an index of macroeconomic policies. The fiscal vulnerability index is based on the patterns of fiscal indicators resulting from past trends of the selected variables in Pakistan’s economy. The financial stress in Pakistan is caused from the financial disorders that are acknowledged in the composite index, which is based on variables with the potential to indicate periods of stress stemming from the foreign exchange market, the securities market and the monetary policy components. The macroeconomic policies index is developed to analyze the mechanism through which fiscal vulnerability and financial stress have influenced macroeconomic policies in Pakistan. The causal association between fiscal vulnerability, financial stress and macroeconomic policies is analyzed using the auto-regressive distributive lags approach.FindingsThere exists a long-run relationship between the three indices, and a bi-directional causality between fiscal vulnerability and macroeconomic policies.Originality/valueThis study contributes to the development of a fiscal monitoring mechanism, which has the basic purpose of analyzing the refinancing risk of public liabilities. Moreover, it focuses on fiscal vulnerability from a macroeconomic perspective. The study tries to develop a framework to assess fiscal vulnerability in light of “The Risk Octagon” theory, which focuses on three risk components: fiscal variables, macroeconomic-disruption-associated shocks and non-fiscal country-specific variables. The initial contribution of this work to the literature is to develop a framework (a fiscal vulnerability index, financial stress index and macroeconomic policies index) for effective and result-oriented macro-fiscal surveillance. Moreover, empirical literature emphasized and advised developing countries to develop their own capacity mechanisms to assess their fiscal vulnerability in light of the IMF guidelines regarding vulnerability assessments. This study thus attempts to fulfill the said gap identified in literature.

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“…Chandia et al (2019) suggest the need for coordination between fiscal policy and monetary policy so that the primary budget balance could be reduced in Pakistan, which creates inflationary pressure in economy. Moreover, it is also worthy to mention and seek guidance from the recommendations suggested by the study of Chandia et al (2022). The work of Chandia et al (2022) has recommended the need for extensive fiscal policy reforms for the control of budget deficits.…”

Section: Conclusion and Policy Implicationsmentioning

confidence: 99%

Fiscal Dominance and the Inflation Dynamics in Pakistan: An Empirical Analysis

et al. 2022

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The presence of high inflation coupled with a persistent and ever-increasing fiscal deficit is the key problem being faced by the developing economies. The fiscal dominance hypothesis suggests that a developing economy is prone to high persistent inflation when government authorities run huge persistent budget deficits and get them financed through money creation. The primary objective of the current study is to test and examine the presence of the fiscal dominance situation over the period 1971–2020. The current study has modelled inflation as a fiscally driven monetary phenomenon by combining monetary and fiscal variables. The study has used the autoregressive distributed lag (ARDL) technique to analyse the long-run and short-run dynamics in a unified framework. The empirical results point to strong and statistically significant long-term relationships between budget deficits and money growth and between money creation and inflation. The study validates the presence of the fiscal dominance hypothesis in the case of a developing economy. The results imply that fiscal dominance handling through a realistic and continuous process of fiscal adjustments on the back of supported monetary policy is necessary for attaining and sustaining price stability in developing countries like Pakistan. In the context of public finance, a broad and wide-ranging tax reforms (increasing the tax base, designing an inflation-proof tax system, and improving tax administration and collection), rationalized government expenditures and privatization of loss-making state enterprises are crucial in establishing the trustworthy fiscal policy.

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An Analysis of the Management of Fiscal Deficit of Pakistan: An Econometric Study of Auto-Regressive Distributive Lags (Ardl) Approach

Cited by 4 publications

References 31 publications

Assessment of Public and External Debt Sustainability Using Debt Dynamics Equation Approach: A Comparative Study of Pakistan and India

Assessment of Public and External Debt Sustainability Using Debt Dynamics Equation Approach: A Comparative Study of Pakistan and India

An analysis of the linkages among fiscal vulnerability, financial stress and macroeconomic policies: an econometric study

Fiscal Dominance and the Inflation Dynamics in Pakistan: An Empirical Analysis

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