Munich Personal RePEc Archive

Pakistan’s Public Debt: The shocks and aftershocks

Gul, Adnan (2008): Pakistan’s Public Debt: The shocks and aftershocks.

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Abstract

Public debt is an important means of bridging government financing gaps. Effective and efficient utilization of public debt can increase economic growth. However, excessive reliance on public debt raises macroeconomic problems. A large gap between revenue and expenditure forces a country to obtain debt. Debt thus obtained further deteriorates expenditure side. High level of public debt holds back the government to meet its macroeconomic objectives of economic growth, price stability and a viable balance of payment. The major implications are sluggish economic growth, macroeconomic uncertainty, decreasing development, investment crowding out, inflation, higher unemployment, deteriorating social conditions and rising poverty causing economic destabilization which itself leads to destabilization of the state. Nation of such a country is often involved in corruption, organized riots, violent protests, strikes, man-slaughter, terrorism and other such crimes. In case of Pakistan, the major cause of poor economic performance is extraordinary burden of both domestic and external debt. The current situation is unsustainable and if it is not altered immediately than collapse of Pakistan’s economy is for certain. It is therefore essential for the government to plan and place policies and structural reforms to take charge of the havoc being played by unsustainable level of public debt.

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