Structure and Impact of Public Debt Burden on Pakistan

Abstract

One of the countries with the highest levels of national debt is Pakistan. Reviewing the state of Pakistan's national debt is the goal of this research. Both the initial and subsequent compositions of the public debt have been studied. The effect of government debt on GDP growth was the next area we investigated. Gross domestic product and gross national product are both used as dependent variables in this research. Including GNP makes sense. The influence on Pakistan's gross national product is substantial due to the country's high level of international remittances. However, several MNCs are active in Pakistan, underscoring once again the need of including GNP into the analysis. We use suitable econometric methods to examine the effects of several variables on GDP and GNP, including domestic and foreign debt, debt service, inflation, and economic openness. The variables are determined to be a combination of I(1) and I(0). Thus, ARDL is used after the confirmation of a long-run relationship by the Bound test. The results reveal that in the long term, Pakistan's GNP and GDP are being negatively affected by the buildup of debt. It is verified that Pakistan's GDP and GNP are affected by the debt overhang impact. Following data analysis, we may propose several Islamic/Shariah-compliant solutions to the problem of public debt. Leasing, Musharkah, Mudarbah, Trade, or a mix of these and other modalities are ways to classify these possibilities. There are a variety of financing options available for each category, leading to the creation of interest-free debt alternative instruments. Potentially lessening the future load of public debt, these solutions deserve consideration. An alternative based on Shariah law has the potential to lower inflation and stabilize the economy. Finally, we need to provide alternative ways for the government to pay for its expenditures. Reducing the future debt service load and freeing up resources for development initiatives may be achieved by means other than public debt. These options include initiatives by Islamic banks, investment funds, PSEs, excess budgets of local governments, and lastly, mining and minerals. There is extensive coverage of all modes, with a focus on minerals and mining. Pakistan is home to 92 distinct mineral kinds. We have three resources that are owned and administered by the federal government: petroleum, gas, and uranium. The mineral-extraction province is in charge of other minerals. Government spending may be financed with much less dependence on the public debt if this sector undergoes reforms.