Government Budget Deficits and the Development of the Bond Market in Pakistan: Issues and Challenges

Abstract

This article examines how better discipline can be brought to fiscal policy, first, through enhanced institutional checks and balances, and second, through better market discipline. We examine the political institutions and budgetary processes that can affect fiscal policy in Pakistan. A sound fiscal policy feeds bond market development, while the bond market provides signals in relation to the prudent conduct of fiscal policy. A common dimension in this mutual relationship is the governance environment. The article concludes that instilling fiscal discipline will remain intractable unless approached comprehensively. Long-term solutions must be found in the development of political institutions and improved governance. An active and liquid bond market can play a crucial role in bringing about fiscal discipline. The real challenge lies in summoning the political will and raising public awareness to implement the required measures.

Public Spending, Quality of Bureaucracy and Economic Growth: A Theoretical Analysis

“…More importantly, the impact of bureaucratic quality on economic growth depends on how strongly an improvement in bureaucratic quality curtails the incentives for rent-seeking. For example, strong institutions and robust mechanisms for monitoring and accountability can be very effective in checking the rent-seeking behaviour, as argued by Uppal (2011) in the case of Pakistan. In this case, an improvement in bureaucratic quality will be likely to produce favorable growth outcomes.…”

“…Furthermore, the politico-institutional approaches show that even in the democratic countries with accountable bureaucracy, distortions in the public spending can stem from lack of awareness by the voters that makes it easy for the bureaucrats to seek rents. This point has been highlighted, in the context of Pakistan, by Uppal (2011) who examines political institutions and budgetary processes that affect the fiscal policy, and shows how greater transparency and strong institutional checks and balances can encourage fiscal discipline [Ghani and Din (2006); Easterly (2001)].…”

Political Instability and the Budget Deficit in Economy: A Case of Pakistan

“…Unfortunately, in Pakistan bond market mechanism showed a negative trend from the last two decades (SBP). However, this study concludes that an active bond market can play an important role in bringing out fiscal policy discipline and long term solution can be found by development of political institutions and by improving governance (Uppal, 2011). Rauf and Khan (2011) define relationship between trade deficit and budget deficit in Pakistan by using time series data of 1980-2009 (economic survey of Pakistan) and applying OLS model.…”

Role of Financial Services in Economic Growth: Policy Implications for Pakistan

“…They have shown that "strong rule of law is associated with deeper local bond markets, whereas countries with better creditor rights are able to issue a higher share of bonds in their local currency." In the context of Pakistan, Uppal (2007Uppal ( , 2011 has provided evidence that the securities laws play an important role in the development of bond markets, because they facilitate private contracting rather than public enforcement.…”