The document discusses the impact of debt on Pakistan's economy. It analyzes the relationship between domestic debt, external debt, and economic growth in Pakistan over 38 years from 1980 to 2018. The results show that domestic debt has a positive relationship with economic growth, while external debt has a negative relationship. Specifically, for every 1 unit increase in domestic debt, economic growth increases by 0.00067 units, and for every 1 unit increase in external debt, economic growth decreases by 0.0015 units. Therefore, the study concludes that external debt has a greater negative impact on Pakistan's economic growth compared to domestic debt. It recommends that Pakistan only take on external debt when necessary due to its harmful effects.

1. SEMINAR IN ECONOMIC
POLICY
The Impact of Debt on Economy of Pakistan
This paper was prepared for Seminar in Economic Policy, facilitator Sir. Dr. Aamir Hussain Siddiqui (IoBM) 01090
INSTITUTE OF BUSINESS MANAGEMENT
COURSE:
SEMINAR IN ECONOMIC POLICY
TOPIC:
THE IMPACT OF DEBT ON ECONOMY OF PAKISTAN
Submitted to:
Dr. Aamir Hussain Siddiqui
Submitted by: Abdul Aziz Afzal Siddiqui 20181-23465

2. This paper was prepared for Seminar in Economic Policy, facilitator Sir. Dr. Aamir Hussain Siddiqui (IoBM) 02
The Impact of Debt on Economy of Pakistan
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Contents
Abstract............................................................................................................................. 03
Introduction ……………………………………………………………………………...04
Literature review…………………………………………………………………………05
Reference to Literature Review ........................................................................................ 07
Model & Methodology ………………………………………………………………….08
Results............................................................................................................................... 09
Conclusion and Recommendation .................................................................................... 10
Key Terms..........................................................................................................................11
Works Cited....................................................................................................................... 12
Data Appendix .................................................................................................................. 13

3. This paper was prepared for Seminar in Economic Policy, facilitator Sir. Dr. Aamir Hussain Siddiqui (IoBM) 03
The Impact of Debt on Economy of Pakistan
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The Impact of Debt on Economy of Pakistan
Abdul Aziz Afzal Siddiqui
(MBA, Institute of Business Management, Karachi, Pakistan)
Abstract:
Purpose – This study examines the impact of external and domestic debt on the economy of
Pakistan. The variables we have chosen are domestic debt, external debt and economic growth.
This research is Explanatory Research by nature and relies on secondary data.
Design/methodology/approach – External Debt and Domestic Debt are selected as independent
variables and economic Growth rate is the dependent variable in this research. Data of past 38
years from 1980 to 2018 was used in this research.
Findings –The result of this study shows that there is a Positive relationship between Economic
Growth and Domestic Debt. The findings also suggest that there is a Negative relationship between
Economic Growth and External Debt. The relationship among these variables is found to be
significant.
Keywords – External Debt, Domestic Debt, Inflation, Investments, Growth Rate

4. This paper was prepared for Seminar in Economic Policy, facilitator Sir. Dr. Aamir Hussain Siddiqui (IoBM) 04
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Introduction
Pakistan is a developing country. So, in order to finance its projects, the government largely
depends on internal and external sources of funds. Since its independence it has faced many
challenges. To meet these challenges the most important thing it requires is the funds which will
be utilized to overcome them. Pakistan has faced economic challenges since its inception. Some
were caused due to poor management; some were the result of unregulated and short-term policies.
Corruption also played a pivotal role in this.
Every developing state wants to have a stable economy so that all its stakeholders can be
benefitted. The government of Pakistan has always tried to lower its current account and fiscal
deficit but in order to meet the requirements of the public they were largely failed in doing this.
Previously many researches have been conducted related to the impact of debt on the economy of
Pakistan. Some researchers showed that both external and domestic debt had a positive impact on
economic growth as these debts give boost to the economy while some showed negative impact.
Research has shown that more than 60% of government revenue is being consumed by debt
servicing while remaining is used for other purposes. So, this shows that the future growth of
Pakistan would be largely affected by this. After taking the first loan from IMF in1958, till now
Pakistan has made 22 arrangements with them. The domestic debt has also increased drastically
but due to the foreign loans the sovereignty of the nation could be challenged.
Research Objective:
● To analyze and find out the impact of domestic debt on economic growth of Pakistan.
● To analyze and find out the impact of External debt on economic growth of Pakistan
● To analyze and identify whether external debt has more impact on economic growth of
Pakistan than domestic debt

5. This paper was prepared for Seminar in Economic Policy, facilitator Sir. Dr. Aamir Hussain Siddiqui (IoBM) 05
The Impact of Debt on Economy of Pakistan
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090
Literature Review
(Malik, 2012) When studied the impact of domestic and external debt on the economic growth of
Pakistan he found out that there is an inverse relationship between domestic debt and economic
growth and the relationship between external debt and economic growth was found to be inverse.
These relationships were found to be significant as well. The results also concluded that external
debt amount slows down economic growth more as compared to domestic debt amount. The
negative effect of external debt is stronger on the economic growth in comparison to domestic
debt.
(Akram, 2010) Concluded that whenever Pakistan too domestic debt it helped them to give
economy a boost but because it was not utilized properly that is why Pakistan was unable to show
massive change in its economy and that is one of the main reasons that Pakistan is still adeveloping
country and not a developed state.
(Asghar, January 2016) When studied the impact of external debt on the economic growth rate
found that Pakistan is largely backed by foreign funded loans and is heavily dependent on it. As
the exports of Pakistan are not increasing rapidly and the imports have increased significantly,
which is why there exists an issue of BOP and to solve these types of problems Pakistan need to
borrow funds
This has been a hot topic in Pakistan. Many researches have been conducted on this topic.
(chaudhary, 1993), Concluded that, when the domestic debt increases, it has a negative impact on
the GNP of the country.
Cunningham (1993) found out that both external and domestic debt have a negative impact on the
economic growth of the country because it inversely affects the productivity of labor and capital
in the economy.
Agenor, P.J.Montiel (2008) concluded that, when there is an increase in debt then an uncertainty
increases in the economy, so as a result the growth and investment both show a downward trend.
In order to meet its debt obligations, the government then imposes different types of taxes and
makes things difficult for businesses.

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According to research done by Sachs (2002), she concluded that the financial assistance given by
different bodies such as the IMF, ADB and others, makes things difficult for the poor economic
countries. They take loan and then they don’t utilize it properly so when the time comes to pay
back the loan then these types of countries face economic crises and then their sovereignty is
challenged and then they cannot face even minor of economic shocks.
M. Were, (2001) concluded that external debts pay a vital role in the development of developing
nations, But it is only beneficial when the government utilize it in such a way that the return on
investment would be that high that it will be able to pay off its loan using the cash flows of that
project.
In a research done by Shabbir (2009), he concluded that the developing states who are largely
funded by foreign organizations and states should try to make their economy export oriented. If
they can do this then it helps them in reducing balance of payment problems and will make them
self-sufficient. So, the external debt problem would be overcome.
Waheed, Awan (2011) and a group of economists conducted a research in which they highlighted
that the domestic debt of Pakistan is getting out of the hands of the government and the
governments face a lot of uncertainty and unsustainability due to this. So, it is getting out of the
hands of government and state bank of Pakistan. Due to these fiscal imbalances there is a
continuous depreciation of exchange rate and inflation nowadays is also rising with the increase
in interest rates.
Research has also shown that government faces many changes because a large amount of money
is being paid to pay the interests which have been accumulated due to loans. It has been seen that
many developing nations have utilized domestic debt brilliantly we and they are becoming
prospering nations but in case of Pakistan the debt is not utilized properly and has not been used
efficiently and effectively, so it is making a negative impact on the economic growth of Pakistan.

7. This paper was prepared for Seminar in Economic Policy, facilitator Sir. Dr. Aamir Hussain Siddiqui (IoBM) 07
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Reference to Literature Review
S NO. TITLE AUTHOR
SOURCE
PUBLICATION
DATE
SAMPLE
SIZE
METHODOLOGY
MODEL
VARIABLES
RESULTS
1
Impact of
Domestic and
External Debt on
the Economic
Growth of
Pakistan
World Applied
Sciences Journal 1980
-
2010
Ordinary Least Square
(OLS)
(Independent)
Inverse relationship
between domestic
debt and economic
growth.
Relationship
between external
debt and economic
growth was found
to be inverse
Rabia Atique and
Kamran Malik
July – December
2012
(Dependent)
2
Impact of Public
Debt on the
economic growth
of Pakistan
MPRA Paper 1972
-
2002
Autoregressive
Distributed
Lag(ARDL) technique
Debt
(Independent)
external debt has
negative
relationship with
per capita GDP and
investmentNaeem Akram December 2010
Growth rate
(Dependent)
3
The effect of
external debt in
the economic
growth of
Pakistan
Journal for
Studies in
Management and
Planning
1986
-
2015
Ordinary Least Square
(OLS)
External Debt
(Independent)
The results show
that the huge
amount of number
of GDP of country
is backed by
external debt
Saad Asghar January 2016
GDP
(Dependent)
4
Resolving the
Debt Crisis of
Low-Income
Countries.
Brookings Papers
on Economic
Activity
1975
-
2000
Debt
(Independent) Poor Countries
need to be more
cautious when
taking funds and
utilize them
properly
Sachs January 2002 Many economic
variables
(Dependent)
5
Does External
Debt Affect
Economic
Growth: Evidence
from Developing
Countries
SBP Working
Paper Series 1976
-
2011
linear panel data
model of fixed effects
and random effect
External Debt
(Independent)
increase in
external debt stock
reduces the fiscal
space to service
external debt
liabilities and thus
dampens the
economic growth
Shabbir January 2013
Growth Rate
(Dependent)

8. This paper was prepared for Seminar in Economic Policy, facilitator Sir. Dr. Aamir Hussain Siddiqui (IoBM) 08
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Model & Methodology
The methodology (secondary data) has been extracted from verifiable sources. The literature has
been taken from research papers and articles from the span of 1980 to 2018. Several variables have
been identified from the research papers used in the research and for acquiring a better
understanding of the subject matter. The major requirement of this research is to identify
relationship of Domestic Debt, and External Debt with Economic growth of Pakistan (%).
Y = α + β1(Domestic Debt) +β2(External Debt)
Here Y (Dependent Variable) is denoted as Annual Economic Growth (%), while Domestic Debt
and External Debt has been taken as Independent Variable.
The function in this research paper is;
Economic Growth = α+β1 (Domestic Debt) +β2 (External Debt).

9. This paper was prepared for Seminar in Economic Policy, facilitator Sir. Dr. Aamir Hussain Siddiqui (IoBM) 09
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Results
SUMMARY
OUTPUT
Regression Statistics
0.50731622
Multiple R
R Square
Adjusted R Square
Standard Error
8
0.25736975
5
0.21611251
9
1.83503450
2
Observations 39
ANOVA
Significanc
Df SS MS F e F
42.0122407 21.0061 6.238172
Regression 2 6 2 5 0.00471962
121.224658 3.36735
Residual 36 4 2
163.236899
Total 38 1
Standard Upper Lower Upper
Coefficients Error t Stat P-value Lower 95% 95% 95.0% 95.0%
5.97011328 0.44551819 13.4003 1.469E-1 6.87366 5.066 6.8736
Intercept 2 6 8 5 5.0665605 6 6 7
0.00067684 0.00022231 0.004338 0.00112 0.000 0.0011
Domestic Debt 5 5 3.04453 8 0.00022597 8 2 3
0.00045966 0.001504 -0.002
External Debt -0.00157942 4 -3.43603 1 -0.0025117 -0.00065 5 -0.0006
Growth = 5.9701+0.00067* (Domestic debt)-0.0015*(External Debt)

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Interpretation
● When both independent variables (Domestic debt) and External Debt are 0, Y variable
(Economic Growth) will be 5.970 as the intercept value shows in the table.
● When Domestic Debt increase by 1 unit, Growth will increase by 0.00067.
● When External Debt increases by 1 unit, Growth will decrease by 0.0015.
● Since the coefficient of External debt is (-0.0015) it impacts the Economy as compare to
Domestic debt having coefficient of (0.00067).
Growth = 5.9701+0.00067* (Domestic debt)-0.0015*(External Debt)
Individual Significance (T-Value)
T-Value is simply the calculated as difference represented in units of standard error. The greater the magnitude
of T, the greater the evidence against the null hypothesis.
● The probability (T-value) of Domestic Debt is 3.044, which indicates it has positive relationship with
Growth of Economy is statistically significant. Hence, if Domestic Debt will increase it will have an
impact on the Economy.
● The probability (T-value) of External Debt is -3.436, which indicates its negative relationship with
Growth of Economy is statistically significant. Hence, if External Debt will increase it will have an
impact on the Economy.
Explanatory Power of Model
Since there are more than one independent variable (Domestic Debt and External Debt), we will consider
Adjusted R Square. It indicates that 21.6% (0.216) change in Economy is explained by changes in Domestic
and External Debt.
Overall Significance of Model
The overall model reliability is indicated through significance of F-Test which should be less than 10% (0.1)
in order to be reliable. Since the probability is 0.04% (0.0004), the overall model is reliable.

11. The Impact of Debt on Economy of Pakistan
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Conclusion and Recommendation
To run the economy, it is very important to know what factors the determinants of Economic Growth are. Every
country has External and Domestic Debts but their impact on economic growth is different considering other
variables which were not part of this research.
The data was taken for the past 38 years from 1980 to 2018 from Ministry of Finance and World Development.
Based on its findings we conclude that Domestic Debt has positive relation with economic growth whereas
External debt has negative relation with Growth, and it slows down the economy. Therefore, it is advisable that
External Debt should only be taken once there is a need considering their negative impact on the economy.

12. The Impact of Debt on Economy of Pakistan
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Key Terms
• Private debt
Private debt is the debt accumulated by individuals or private businesses. Private debt can take
numerous forms; a personal loan, credit card, corporate bond or business loan for instance.
• Public debt
Public debt is how much a country owes to lenders outside of itself. These can include individuals,
businesses, and even other governments. Public debt usually only refers to national debt.
• Internal debt or domestic debt
Internal debt or domestic debt is the part of the total government debt in a country that is owed to
lenders within the country. Internal debt's complement is external debt. Commercial banks, other
financial institutions etc. constitute the sources of funds for the internal debts.
• Fiscal Deficit
A fiscal deficit is a shortfall in a government's income compared with its spending. The government that
has a fiscal deficit is spending beyond the limit.
• Debt moratorium
Debt moratorium is a delay in the payment of debts or obligations. Proponents of debt moratoriums
argue that it is a sovereign decision by the government of a nation to suspend payment of debt to its
creditors, if to do otherwise would do irreparable harm to the welfare of its citizenry.
• Debt rescheduling
Debt rescheduling is the lengthening of the time of debt repayment and forgiving, or dismissing, part of
a loan.
• Debt Repudiation
Debt repudiation involves disputing the validity of a contract and refusing to honor its terms.
• Hyperinflation
Hyper-inflation is a term to describe rapid, excessive, and out-of-control price increases in an
economy.

13. The Impact of Debt on Economy of Pakistan
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Works Cited
Akram, N. (2010). Impact of Public Debt on the economic growth of Pakistan.
Asghar, S. (January 2016). The effect of external debt in the economic growth of Pakistan. Journal for
Studies in Management and Planning.
chaudhary, l. a. (1993). domestic Debt and Economic Growth: Empirical Evidence from Pakistan.
International Research Journal of Finance Error Correction: Representation, Estimation and.
Kasidi, F., & MWAKANEMELA, K. (2013). IMPACT OF INFLATION ON ECONOMIC GROWTH: A CASE
STUDY
OF. Asian Journal of Empirical Research, 363-383.
Malik, R. A. (2012). Impact of Domestic and External Debt on the Economic Growth of Pakistan. World
Applied Sciences Journal.
Sultan, A., & Shah, F. M. (2014). Impact of Inflation on Economic Growth of Pakistan. International
Journal of Science and Research (IJSR).
Wajid, A., & Kalim, R. (2010). The Impact of Inflation and Economic Growth on Unemployment: Time
Series Evidence from Pakistan. 3rd International Conference on Business Management.
Shabbir, S., (2009, 11 20). Does External Debt, Inflation, average consumer prices. Affect Economic
Growth of Developing Countries
Waheed, A., (2006). Sustainability and Determinants of Domestic Public Debt of Pakistan. Discussion
Paper
Were, M., (2001). The Impact of External Debt on Economic Growth in Kenya: An Empirical Assessment
Sachs, J.D. (2002). Resolving the Debt Crisis of Low-Income Countries. Brookings Papers on Economic
Activity
Agenor, P.R. and P.J. Montiel, 2008. Development Macroeconomics. New Jersey: Princeton University
Press
http://data.worldbank.org/country/pakistan?view=chart
http://www.tradingeconomics.com/pakistan/indicators
http://www.scstrade.com/MarketStatistics/MS_HistoricalIndices.aspx

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Data Appendix
Domestic TOTAL DEBT GDP
YEAR Debt External Debt (Rs. Bn) (%)
1980 60 86 146 10.22
1981 58 87 145 7.92
1982 81 107 188 6.54
1983 104 123 227 6.78
1984 125 132 257 5.07
1985 153 156 309 7.59
1986 203 187 390 5.50
1987 248 209 457 6.45
1988 290 233 523 7.63
1989 333 300 633 4.96
1990 381 330 711 4.46
1991 448 377 825 5.06
1992 532 437 969 7.71
1993 617 519 1136 1.76
1994 716 624 1340 3.74
1995 809 688 1497 4.96
1996 920 784 1704 4.85
1997 1056 939 1995 1.01
1998 1199 1193 2392 2.55
1999 1389 1557 2946 3.66
2000 1645 1527 3172 4.26
2001 1799 1885 3684 1.98
2002 1775 1862 3637 3.22
2003 1895 1800 3695 4.85
2004 2028 1839 3867 7.37
2005 2178 2034 4212 7.67
2006 2322 2038 4360 6.18
2007 2601 2201 4802 4.83
2008 3274 2853 6127 1.70
2009 3860 3871 7731 2.83
2010 4653 4357 9010 1.61
2011 6014 4756 10770 2.75
2012 7638 5059 12697 3.51
2013 9520 4771 14291 4.40
2014 10907 5085 15992 4.67
2015 12193 5188 17381 4.73
2016 13626 6051 19677 5.53
2017 14849 6559 21408 5.70
2018 16416 8537 24953 5.43