Review of external debt.

Byline: S. Kamal Hayder Kazmi

External debt plays both a pessimistic as well as optimistic role in shaping economic growth in any country mainly developing. Various studies recorded that external debt is useful when the government uses it for investment-oriented projects like energy, infrastructure and agriculture sector. And it will affect pessimistically when it is utilized for private and public consumption purposes, which do not bring any return. Additionally, a low level of external debt impacts economic growth optimistically, but this relationship becomes negative at a higher level.

Researchers noted that external debt is a significant source of public financing in developing countries and carries the potential to play a key role in enhancing economic growth. Traditional studies regarding economic growth has emphasized the optimistic role of debt in economic development. It assists sustain growth by declining the investment-savings gap, brings funds for spending on modern technology and rises productivity. Furthermore, Pakistan's investment-savings gap has drastically increased over time. In 2013, statistics showed that the country's external debt was recorded $60.9 billion, which rose to $65.4 billion during 2014. In 2016, it stood $73.1 billion. Now, by March 2017 it has already risen by greater than $2 billion to $75.7 billion. This continuous rise in external debt, even after considering the arguments explained above, is not sustainable for the country's long-term growth.

In Pakistan, external debt is being sustained against different collaterals, like government buildings, which may lead to the sovereignty issue.

Statistics showed that the external debt and liabilities currently have crossed $105 billion mark till end March 2019. Pakistan's external debt and liabilities have gone up to $105.841 billion from $95 billion during the first 9-month of FY2018-19, showing grave challenges on debt servicing. The external debt and liabilities raised $10 billion under the tenure of the incumbent regime. The disbursement of foreign loans has so far remained slow during FY2019, but the reliance on foreign debts is on the increase owing to external account gap.

Researchers mentioned in the different studies that debt becomes essential to complete the government's financial requirements, which otherwise can be met only by growing the tax rates - the latter being an unpopular decision for the masses and hence not pursued by most governments.

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