The Association Between Debt-to-GDP Ratio and Foreign Debt: A Case of Foreign Debt Taken by Last Three Governments of Pakistan During 2008-2022
Abstract
Pakistan's reliance on foreign debt has been a major concern for policymakers and economists for many years. The country's debt-to-GDP ratio has increased significantly in recent years, raising questions about the sustainability of the country's debt burden and its implications for economic growth and development. The research begins by providing an overview of the role of foreign debts in financing Pakistan's developmental needs and meeting its budgetary requirements. It then examines the foreign debts taken by the last three governments and analyzes the implications of foreign debts on the country's economy, fiscal policies, and external relations. Nexus to the phenomena, the data was collected on twelve development indicators of World bank which include consumer price index/ inflation, external debt stock, annual GDP growth, government consumption expenditure, households’ consumption (percentage of GDP), official exchange rate, total debt service and trade (percentage of GDP). The research discusses the best practices for managing foreign debts and provides recommendations for minimizing our dependence on foreign debts. These recommendations include develop long term debt management strategy (Lowering borrowing costs, Enhancing debt sustainability Strengthening investor confidence, Promoting transparency and Supporting economic growth), Diversify funding sources, Focusing on economic growth (by increasing exports, Improved creditworthiness, Attraction of foreign investment, Enhanced debt servicing capacity and Reduced reliance on foreign borrowing), Improve debt sustainability analysis (by Identifying risks, Setting debt limits, Developing debt management strategies and Providing early warning signs), Strengthen debt management capacity (by Developing human resource, Better coordination with other government agencies, Improved debt data management and Developing a robust legal and institutional framework), promoting foreign direct investment, enhancing tax collection, reducing non-development expenditures, and improving the efficiency of public sector organizations. Moreover, this research also suggests the establishment of an independent Debt Management Office to ensure the prudent management of foreign debts. Overall, this research provides valuable insights and recommendations for senior management professionals in Pakistan to address the issue of our dependence on foreign debts.
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