Historical Review of External Debt in the Economy of Pakistan

Abstract

Until the start of the 1990s, Pakistan’s economic performance was characterized by a high rate of gross domestic product (GDP) growth, averaging close to 6 percent. This impressive rate of growth was largely based, however, on external capital inflows. In line with many other developing countries, the availability of external financing resulted in the growing stock of un-addressed structural imbalances, principally in the domain of Public finances and the external account. As a consequence of inadequate policy effort, Pakistan experienced a rapid accumulation of debt and a mountain of debt burden. For the first time in Pakistan’s history, a formal debt exit strategy was launched by the government to address the problem. However, as a result of Pakistan’s decision to fully support the US-led coalition’s war in Afghanistan, it received substantial international assistance which positively impacted the debt situation. This study was undertaken with a view to find out the reasons of catalytic increase in the national debt with a focus on external debt and liabilities in historical perspective. The study also analyzed the adverse affects of external debt on balance of payment and detail measures taken by the government of Pakistan to escape from the external debt trap & to ameliorate the negative affect of external debt on the economy of Pakistan.