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Unlocking Pakistan's Debt Conundrum: A Deep Dive into the Dynamics of Debt Servicing and External Debt Stock

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  • Muhammad Ghulam Shabeer
  • Ms. Azra
  • Ayesha Anwar
  • Rabia Zubair

Abstract

Pakistan stands at a crossroads where the burgeoning debt servicing cost of Rs 7.3 trillion is going to swallow the lion’s share of the projected revenue of Rs 9.2 trillion. This revenue also includes the Rs 5.2 trillion share allocated to the provinces. It is essential to study the causes of such a high debt stock rate, which requires a large outflow of foreign reserves. This study took 50 years of data about Pakistan and analyzed certain determinants of debt stock including debt service cost, budget deficit, military expenditure, import bill, and population. ARDL was used after finding a mixed order for stationery. The short and long-run analysis is undertaken. The Result shows that debt cost has a significant negative impact on debt stock, whereas budget deficit, military expenditure, import, and population have a significant positive impact on national debt. Based on the results, this study suggests that military expenditure and imports should be decreased to control national debt. The population must be maintained at an optimal level. The government should not go for a budget deficit as it requires further loans. The Results were checked for robustness and the model was stable.

Suggested Citation

  • Muhammad Ghulam Shabeer & Ms. Azra & Ayesha Anwar & Rabia Zubair, 2024. "Unlocking Pakistan's Debt Conundrum: A Deep Dive into the Dynamics of Debt Servicing and External Debt Stock," Journal of Economic Impact, Science Impact Publishers, vol. 6(2), pages 125-130.
    • Handle: RePEc:adx:journl:v:6:y:2024:i:2:p:125-130
    DOI: 10.52223/econimpact.2024.6202
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    References listed on IDEAS

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    1. Dani Rodrik, 1988. "The Welfare Economics of Debt Service," NBER Working Papers 2655, National Bureau of Economic Research, Inc.
    2. Muhammad Ghulam Shabeer & Farhat Rasul, 2024. "Energy, Forests and Environmental Sustainability: A Comparative Analysis of Developed and Developing Economies," Journal of Economic Impact, Science Impact Publishers, vol. 6(1), pages 14-20.
    3. Suzanna-Maria Paleologou, 2013. "A Dynamic Panel Data Model For Analyzing The Relationship Between Military Expenditure And Government Debt In The Eu," Defence and Peace Economics, Taylor & Francis Journals, vol. 24(5), pages 419-428, October.
    4. Clement Moyo & Pierre Le Roux, 2019. "Interest Rate Reforms and Economic Growth in SADC Countries: The Savings and Investment Channel," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 66(4), pages 507-523, December.
    5. Tešić, Aleksandra & Ilić, Dragan & Đelić, Anastazija Tanja, 2014. "Consequences Of Fiscal Deficit And Public Debt In Financing The Public Sector," Economics of Agriculture, Institute of Agricultural Economics, vol. 61(1), pages 1-18, March.
    6. Looney, Robert E., 1987. "Impact of increased external debt servicing on government budgetary priorities: The case of Argentina," Socio-Economic Planning Sciences, Elsevier, vol. 21(1), pages 25-32.
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