Domestic Resources and Fiscal Policy in Pakistan's Second and Third Plans

Stephen R. Lewis Jr.


Pakistan is now widely regarded as a successful case of
movement toward self-sustaining economic growth. If one lets it become
known that he has spent some time in Pakistan, other economists
immediately want to know: What happened? What were the "real" causes? Is
the success a mirage? How long will it last? An attitude of enthusiasm
is a sharp contrast to the air of pessimism that prevailed as recently
as two years ago. The notes here are not an attempt to establish what
has happened to Pakistan's economy, or why it happened now and not five
years ago. The aim is much more modest, but may have some bearing on the
larger question. My primary interest is in examining certain aspects of
government policy in general and fiscal policy in particular, excluding
policy on government expenditures. I shall not be concerned with Plan
allocations and government outlays. In the macroeconomic framework of
Pakistan's plans, present investment is the only determinant of future
output. The problem of "mobilizing" resources is one of finding offsets
to investment expenditure from either domestic or foreign sources. The
Third Plan states [16, p. 20] that "the main task in the Perspective
Plan will be to institutionalise the growth process and to finance it
increasingly from domestic resources." The "domestic resources" with
which the Plan is primarily concerned are domestic saving (to offset
investment) and exports (to pay for imports). A related variable not
treated in the discussion of the Perspective Plan is taxation, which is
necessary to offset government expenditure on current and capital
account. In order to reduce and eventually eliminate foreign assistance,
while maintaining or increasing the proportion of income invested,
domestic saving must increase more rapidly than investment, taxation
must increase more rapidly th?a government current and capital
expenditures, and exports must increase mote rapidly than imports, since
foreign assistance now offsets a large proportion of investment,
government expenditure, and imports.

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