Pakistan Institute of Development Economics

Breaking the debt lock 
Publication Year : 2020

This report is published as a requirement under the Fiscal Responsibility and Debt Limitation Act, 2005 (amended July 2017) generally termed as FRDL-2005. The FRDL-2005 states that there is a debt sustainability limit of 60 percent of GDP now and by 2032-33 it is required to be 50 percent or below as a percentage of GDP. Fiscal policy provides the leverage to the government for borrowing against the fiscal deficits aiming at higher economic growth or providing cushion in economically bad times. At low levels of sovereign indebtedness, an increase in the proportion of public debt-to-GDP could promote economic growth. However, at high levels of sovereign indebtedness, an increase in this proportion could hurt economic growth.