Debt Dynamics and its Burden on National Economy: A Case Study of Pakistan (1970-2005)

Abstract

This paper examines the debt dynamics and its burden in Pakistan over the last three decades. Our results indicate that the rising level of twin deficits, exchange rate fluctuations and high interest rate payments are the three core variables responsible for the rise in public debt ratio and debt burden. Results reported reveal that the primary balances mainly contributed to the rise in public debt ratios, the exchange rate factor has also remained important throughout the period in raising the public debt ratio, where as the role of interest factor was insignificant in general. Similarly primary current account balances and depreciation of exchange rate played a critical role in raising the external debt ratios, whereas interest rate factor was marginally responsible towards the rise in external debt to GDP ratio in 1990s and 2000s.