what is national deficit and how it affects . we can publish notes but still we borrow from other countries . what eill be wrong if we keep publishing our own rupess ? America be maqrooz h america kis ka maqrooz h or kasy

What is national deficit:

First you need to understand fiscal deficit. Fiscal deficit is a country's yearly deficit when it spends more than it has. Suppose you have 100 rupees and you've to get through the entire month on that. But you end up spending the 100 rupees in first 20 days and now you're left with nothing. What you do then is borrow money from your friends or family to get through the remaining days of the month. Suppose you borrowed 50 rupees. Now your monthly expenditure was Rs. 150 while your budget was Rs. 100 and your borrowings were Rs. 50. Thus your monthly fiscal deficit = Your spending - Your budget = 150 - 100 = 50 Rs. This concept is quite similar to cutting your coat according to your cloth (Chaader dekh ker paon phelao). If you try to make a coat more than the cloth you've, you end up borrowing cloth from others, putting yourself in debt.

You had to borrow 50 Rs. because you spent a lot more than you had which actually put strain on your finances and made you borrow. Now apply this concept at national level. A government's yearly fiscal deficit is the difference between its expenditures and its budget.

Fiscal deficit = Government expenditure (public sector development, subsidies etc) - Government's budget (The money a government raises by taxation etc).

Fiscal deficit is incurred by governments on yearly basis and normally represented as a % of GDP.

National deficit is simply the sum of all the previous fiscal deficits of a government. It is also called national debt. In case of Pakistan it is the sum of all the fiscal deficits of national government since 1947.

HOW FISCAL DEFICIT AFFECTS

Can you keeping on taking loan from people or banks without having to pay it? You simply can't.
Coming back to the above example, suppose you took 50 Rs. loan in January for your expenditure. In february you're supposed to return that loan with interest, meaning that you've to repay 60 Rs. In case you want to maintain a good repute wth your friends as a person who returns others' loans, you have to repay that oan in February. For that to happen, what you've to do is cut down your expenditures in february. In January you spent 150 Rs against a budget of Rs. 100. In February you have again got a budget of Rs. 100 but this time you cut your spending down to Rs. 80. You have to return the Rs. 60 loan of January.

So in february you spend Rs. 80 (monthly expenditure) + 60 (repaying January's loan) = 140 but your budget was only Rs. 100. What this means is that YOU'VE TO BORROW Rs. 40 AGAIN. And in case you do not pay the loan due in February, you're declared bankrupt, police locks you up (unless you belong to the feudal oligarchy in Pakistan which gets loans written off with much ease)

Same is the case with governments. Suppose Pakistan takes a loan of 1 Billion Dollar for year 2011-12 from IMF. In 2012-13 Pakistan will have to repay Rs 1.5 Billion to IMF. This would be possible only by cutting down the national expenditure, which will render that government politically unpopular. People will hate the government for not spending in development projects. Industries will hate the government for not giving subsidies. End result: a government which tries to repay loans by cutting down the expenditure, it has negligible chances of being relected. But suppose the government DOES NOT re-pay the loans efficienlty and continues to borrow from outside world and spends in public sector. This will obviously make the people happy but it damages the repute of country as a reliable borrower. When you refuse to pay loans, outside world refuses to re-new the loans.

So the effects of fiscal deficit can be summarised as:

- More fiscal deficit means you've to take more and more loan to fill the gap between spending and expenditure which in return means that more and more interest is accumulated

- If you do not repay loans, other countries will stop giving you loans when you really need them

- High fiscal deficit means higher and higher interests being accumulated

- High fiscal deficit means you will have to take loan and to repay it the next year, you will have to cut down the public spending which will make your government unpopular.

WHY CAN'T WE PUBLISH OUR OWN RUPEES

Suppose you have a cake. You hand out tickets to people so they can each get a piece. If you hand out a thousand tickets, either you're going to have to slice the pieces very, very thin, or a lot of people are just going to have worthless tickets. If you hand out just two, each person can have quite a bit of cake. The value of the tickets, then, depends a lot on how many you hand out.

That's basically what money is. It's a promise to pay from the government. You get the money and you can trade it with people in that country for stuff. And just like with the cake, if suddenly tons of people have money, either the money ends up being worth very little or most of the people with money get nothing for it.

A good example of this from history was Germany in 1922. Faced with a sagging economy and forced to pay massive debts as reparations for World War I, the government started printing money as fast as they could to meet these demands. Paper mills and printing presses were LITERALLY running as fast as they could night and day. Over a period of six months or so, the value of the German mark dropped 3.7 MILLION times!

Reference (Yahoo Answers)

So we can't just print more money because it will actually mean every one will have more and more money. End result: prices of things will double and what cost Rs. 10 initially will cost Rs. 20 now because every one has more money to spend. This is called inflation.

America be maqrooz h america kis ka maqrooz h or kasy

America was NOT maqrooz before 9/11. American budget was a $128 Billion surplus which means that even after doing all the expenditures, American government had $ 128 Billion extra which it could use next year. But right now America has a budget deficit of $ 12 Trillion! ( 1 trillion = 1000 billion). It is a huge huge amount. It is almost equal to Pakistan's 60 years' budget at current rate. What made American economy bleed so heavily was:

1- 2 costly wars (Iraq war cost about $ 2 trillion, Afghan war's current cost is $ 1 trillion and this amount is also expected to cross $ 2 trillion keeping in view the massive development projects America is financing in afghanistan).

2- Heavy defense spending of USA. American spending on defense is more than the combined defense spending of the rest of the world

3- American tax cuts. To give relief to people since 2008 financial crisis, America tried to deliver services without asking them to pay mych taxes(This is the concept of Islamic welfare state which we have relinquished). But this put strain on American economy


Now the question is whom does America owe its debt to:

When we talk about to whom the U.S. government owes money, we're talking specifically about the public debt. This is debt that the USA government owes to foreign governments (China, Japan, Switzerland etc), national and international corporations, banks and financial institutions, American states and local governments etc.

http://www.ritholtz.com/blog/2011/03...-owe-money-to/

Hope this helps clear your concepts.

To make a sense of things on your own, I would advise you to read the international and business pages of Dawn daily and the economy supplement ( the brown pages) on Monday. Anything you find confusing, you can simply google. May ALLAH bless us all with success

__________________
"And how can man die better than facing fearful odds, for the ashes of his fathers, and the temples of his Gods?"

thanks a lot for this comprehensive and detailed answer. yoy have erased a lot of confusion of mine.kindly explain this sentence "Fiscal deficit is incurred by governments on yearly basis and normally represented as a % of GDP". and GDP as well .

Do not use red . It is reserved for moderator use. Read and follow Forum Rules and Policies.

__________________
To succeed,look at things not as they are,but as they can be.:)

Fiscal deficit is incurred by governments on yearly basis

By that it is meant that Fiscal deficit is counted/accounted for on YEARLY basis. Before the fiscal year of a country starts, a target is set that we will not let the fiscal deficit grow by XYZ %. Then the government's budget is announced and after the fiscal year is complete, we get to know the economic performance of the government through Pakistan Economic Survey.
In short, just like in your example we talked about your deficit on monthly basis, governments' fiscal deficit is normally counted on YEARLY basis. That is it

What is GDP

According to Wikipedia, Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a given period of time.

Just take a rough example. Suppose that you run multiple business at the same time. Let's say you manufacture textiles (this is manufacturing or PRODUCTION OF GOODS) and you own a bank (this is counted as SERVICES). The market value of all the goods (price of textiles in your case) you produce in a year and all the services you provide (the profits from banking in your case) is your own GDP. Apply this at Pakistan and you get the GDP of Pakistan. The total sum of market value of AAAALLLLLL the prodcuts and services made and provided by Pakistan is Pakistan's GDP

Why Fiscal deficit is explained as a percentage of GDP

GDP is so important a measure of a country's economy that we take the GDP Growth Rate as the sole and most important indicator of how well a country is doing economically. All the other important indicators are explained in terms of GDP because only then they make sense.

Suppose we talk about fiscal deficits of Kuwait and USA. Kuwait's GDP might be $200 Billion whereas America's GDP might be around $ 20 Trillion (20 thousand billion). So America's GDP is 200 times larger than Kuwait's. Just keep this in mind. Now lets say that America is doing really really well economically whereas Kuwait's economy is all shattered and broken. Let's say America's fiscal deficit for this year is $ 400 Billion (doing very good) and Kuwait's Fiscal deficit is around $ 40 billion (doing very bad)

Now if some one just looks at the 2 fiscal deficits: $400 Billion and $ 40 Billion without comparing the size of their economies, one might say that Kuwait is doing good because Kuwait's fiscal deficit is very little compared to USA's (10 times smaller). But the reality is that if these fiscal deficits are mentioned in terms of the size of the economy (or the GDP), ths is what we get:

USA's deficit = 2 % of its GDP

Kuwait's deficit = 20 % of its GDP

Thus we see that if we ignore the GDP (the size of economy), we can't guess about a country's economic progress simply by looking at the absolute values of fiscal deficit etc. We NEED TO LOOK THEM THROUGH THE LENS OF GDP. Only then do they make sense.

That is why most of the important indicators are viewed as a % of GDP, and not in their absolute values. for example investment is mentioned in INvESTMENT TO GDP RATIO, tax collection is talked about as TAX TO GDP RATIO, trade is measured as TRADE TO GDP RATIO, debt is measured in DEBT TO GDP RATIO.

Hope it makes sense. God bless

__________________
"And how can man die better than facing fearful odds, for the ashes of his fathers, and the temples of his Gods?"

what is foreign exchange reserve /? and as we have taken loan from IMf that is also a shape of rupee this does not degrade our economy as is done by pulisguhing our own?

as u suggested to read newspaper the term " kse 100 index up by 593 poits " baffling me kindly explain in detail you have done previously thans a lot

It is an amount of money or Gold (now a days mostly vehicle currencies are kept), monetary authorities or a central bank holds. International monetary funds and special drawing rights (IMF term) are also included in it. that is why when our reserves depletes we go to IMF for financial assistance

__________________
Janoon say or Ishq say milti hay AAZADI

Few points for you.

•FOREX or Foreign Exchange means other countries' money.
•The foreign exchange rate is the rate at which one one country's money can be turned into others'
•Foreign Exchange Reserves are stocks of gold or convertible foreign currency held by Central Banks (SBP in case of Pakistan) or governments to enable them to intervene in foreign exchange markets to influence the exhange rate.
•The loan from IMF is in form of US dollars or SDRs-Special drawing Rights-IMF's currency(a pool of currencies) not in Pakistani rupees.
•Thus FOREX reserves are used to influence foreign exchange rate and to foot the import bills usually for imported oil.

Hope you understand..

what does mean by fiscal adjustment

what does mean by nfc and what is its purpose and for what 'Award ' stsnds here