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External Debt Sustainability Analysis for Pakistan: Outlook for the Medium Term

Author

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  • Sabina Khurram Jafri

    (State Bank of Pakistan)

Abstract

This paper estimates Pakistan’s external debt by using Debt Sustainability Assessment (DSA) technique. The main findings of the paper are that as a result of small individual shocks to main components of external debt evolution i.e., real GDP growth, non-interest current account balance to GDP ratio and the ratio of net non-debt creating capital inflows to GDP, the country’s external debt to GDP ratio will increase though, but would remain within safe limits. Secondly a significant 30-40 percent depreciation of the exchange rate has the potential to cause the debt to GDP ratio breach the debt threshold level indentified for Pakistan. Finally, a large combined shock to real GDP growth, non-interest current account balance to GDP ratio, and the ratio of net non-debt creating capital inflows to GDP together will also result in a need for another debt rescheduling. Length: 20 pages

Suggested Citation

  • Sabina Khurram Jafri, 2008. "External Debt Sustainability Analysis for Pakistan: Outlook for the Medium Term," SBP Working Paper Series 27, State Bank of Pakistan, Research Department.
    • Handle: RePEc:sbp:wpaper:27
    as

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    File URL: http://www.sbp.org.pk/repec/sbp/wpaper/wp27.pdf
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    References listed on IDEAS

    as
    1. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
    2. Nadeem A. Burney, 1988. "Determinants of Debt Problem in Pakistan and its Debt-servicing Capacity," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 27(4), pages 805-818.
    3. Mr. Philippe D Karam & Mr. Douglas Hostland, 2005. "Assessing Debt Sustainability in Emerging Market Economies Using Stochastic Simulation Methods," IMF Working Papers 2005/226, International Monetary Fund.
    4. Pervez Hasan, 1999. "Pakistan’s Debt Problem: Its Changing Nature and Growing Gravity," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 38(4), pages 435-470.
    5. Roberto Rigobon & Marcio Garcia, 2004. "A Risk Management Approach to Emerging Market’s Sovereign Debt Sustainability with an application to Brazilian data," Econometric Society 2004 Latin American Meetings 24, Econometric Society.
    6. Muhammad Aslam Chaudhary & Sabahat Anwar, 2000. "Foreign Debt, Dependency, and Economic Growth in South Asia," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 39(4), pages 551-570.
    7. Mr. E. H. Gardner & Mr. Julian Di Giovanni, 2008. "A Simple Stochastic Approach to Debt Sustainability Applied to Lebanon," IMF Working Papers 2008/097, International Monetary Fund.
    8. Marcio Garcia & Roberto Rigobon, 2004. "A Risk Management Approach to Emerging Market's Sovereign Debt Sustainability with an Application to Brazilian Data," NBER Working Papers 10336, National Bureau of Economic Research, Inc.
    9. Islam , Md. Ezazul & Biswas , Bishnu Pada, 2005. "Public Debt Management and Debt Sustainability in Bangladesh," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 31(1-2), pages 79-102, March-Jun.
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    Cited by:

    1. Syed Ammad & Sabihuddin Butt & Shaista Alam, 2012. "Fiscal Responsiveness, Persistence and Discretion: A Case Study of Pakistan," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 15(45), pages 227-244, September.
    2. Ejaz, Khurram & Javid, Attiya Yasmin, 2011. "An assessment of debt sustainability in scenario of Pakistan’s debt burden," MPRA Paper 37563, University Library of Munich, Germany.

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    More about this item

    Keywords

    External debt; sustainability; Pakistan;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics

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