Power subsidy, budget deficit and inflation in Pakistan

The government is likely to sustain high budget deficit owing to increased subsidy to power sector to the tune of US dollar 2 billion annually. The increase budget deficit of level not less than 7.5% of GDP or almost RS 1285 billion will be met through mainly by state bank of Pakistan. Although study suggest that there is poor long run relationship between inflation and budget deficit, the budget deficit will likely trigger fresh wave of inflation in the country which is already in double digit figure of almost 15% in November. The high inflation rate and high interest rate environment is thwarting businesses and investments in the country and aggravating economic condition of the country as witnessed by power outages, power shortages, etc.