Abstract
The major objective of this study is to check the effect of external debt on the GDP growth of Pakistan. For this purpose annual time series data were used for the period 1980 to 2020. Augmented Dickey-Fuller test was applied to check the stationary status of the data and the least square method was applied for the estimation of the results. For the analysis GDP growth rate was taken as a dependent variable and other variables, such as economic growth (Annual %), inflation rate (CPI %), Foreign Direct Investment net inflow (% of GDP), multi-lateral debt services (% of public and publically generated debt service), Total debt service (% of GNI), Short term debt (% of total reserves) were taken as explanatory variables. Findings revealed that the total debt and multilateral debt negatively affect the GDP growth rate, whereas, FDI and short term debt are positively associated with growth rate. It is suggested that to improve the economic growth Pakistan should focus on investment projects and there is a need to implementation better policies for foreign debt utilization
Highlights
Almost every government in developing countries have to face a budget or economical deficit due to lack of financial resources, more expenditures and less revenue
The present study was aimed to investigate the impact of foreign debt on the economic growth of Pakistan’s economy for the period of 1980 to 2020
The study finds that short term debt services positively affect the GDP growth rate, whereas, multilateral debt services and debt services as % of GNI negatively influence the economic growth of Pakistan’s economy
Summary
Almost every government in developing countries have to face a budget or economical deficit due to lack of financial resources, more expenditures and less revenue. To fulfil the economic needs and to remove the budget deficit government can generate revenue by printing new notes, imposing tax and by borrowing from internal and external resources. Public debt is a situation, when the government choose to borrow despite introducing active taxation policies to meet the budget deficit it makes a liability on itself (Rais & Anwar, 2012). The government can borrow from external sources. It is considered that external debt is an important source to improve economic growth. Poor and less develop economies rely heavily on foreign resources as external debt, Pakistan is one of them
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