Pakistan Institute of Development Economics

P & R Vol.2 Issue 6
Debt in Pakistan: Sustainable or Not?
Publication Year : 2021
Author: Abdul Jalil

The developing countries are in debt trap. They need external funds since they cannot generate adequate resources domestically to achieve economic growth to improve their livelihood. In general, the government use three methods to finance their expenditures, they may increase the taxes, can print the money, and borrow the money. Due to variety of advantages of borrowing the governments prefer to borrow. Therefore, they borrow from external resources and in curdebt. Most of the times, the repayments are not easy for them, and they face debt sustainability issues, and consequently, it hits the economic growth process. The countries incur debt due to the shortage of local finances. It is a norm in the life of countries that they incur debts. But the important question is how much is too much? That is, how much debt is beneficial for the countries and after what limit it is dangerous for the economies. It depends on the debt sustainability of the country. When a country is able to meet all its payment obligations, current and future, without taking exceptional finances from the external resources without being default is known as debt sustainable country. The sustainability of the debt of a country depends on the number of factors like the quality of institutions, debt management capacity and macroeconomic fundamentals, that is, economic growth.