An Empirical Assessment of the Dynamics of Public Debt and Economic Growth in Pakistan
Public debt is affecting economic growth positively or negatively? A long debate about this particular issue exist. The present study examines the dynamics of foreign debt during 1972-2018 in case of Pakistan to provide a sound working understanding of debt-growth nexus for effective debt management especially for developing country like Pakistan. Data was taken from various issues of economic survey of Pakistan and World Development Indicators database. The study uses ARDL model to gauge the long run relationship between public debt, net exports, supply of money (M2), Investment and GDP growth. Results shows that foreign debt, supply of money (M2) is affecting economic growth negatively but statistically significant. While net exports and investment are affecting GDP growth positively. For effective debt management foreign debt shall be used with proper care and this is the responsibility of the government to highlight the risk of foreign debt and the same may be used as a lender of the last resort, otherwise it will put a serious pressure on the scarce resources of under developed country like Pakistan.