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Fiscal Strategy for Growth and Employment in Pakistan: An Alternative Consideration

International Labour Organization, May 1, 2003

Tariq A. Haq

Abstract: The paper explores Pakistan’s fiscal stance in recent years and presents empirical evidence showing that fiscal deficits in Pakistan since 1980 did not appear to have had any detrimental impact on private investment and GDP growth, nor were they necessarily associated with tangible increases in inflation. Furthermore, the study critically finds evidence of private investment – which must ultimately serve as the longer term driver of growth and employment – being crowded-in by public investment expenditure in Pakistan. The importance of maintaining broader macroeconomic stability in the longer run notwithstanding, there is a strong case for a prudent degree of fiscal pump-priming, or carefully managed deficit expansion, in the short term, in order to provide the impetus to rekindle private investment, growth and employment.

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