Determinants of Debt Problem in Pakistan and its Debt-servicing Capacity

Nadeem Burney
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Nadeem Burney: Pakistan Institute of Development Economics, Islamabad.

The Pakistan Development Review, 1988, vol. 27, issue 4, 805-818

Abstract: In the last decade, Pakistan's external debt obligations have risen to an unprecedented level. T~s is despite the fact that the country had been able to borrow on concessional terms from international organizations and foreign governments unlike many other developing countries. The situation has raised concern about the viability of the strategy of excessivedependence on foreign sources and the problems it poses for sustainable growth. Between 1970 and 1980 Pakistan's external debt grew at an average rate of 11.3 percent. Altho!Jgh, during the Eighties it has grown at a much slower rate, Le. 2.37 percent, but by 1986-87 the level of total external debt had reached more than 12 billion U.S. dollars. A notable feature of this change has been that since the mid,Seventies the debt-service payments have increased at a much faster rate compared with the outstanding debt. This paper makes an attempt to analyse changes in the levels of Pakistan's external indebtedness. Various debt-burden and debt-service indicators will be examined to highlight features of Pakistan's external debt obligations. In Section III variations in debt indicators will be related to various factors, e.g. terms of borrowings, external shocks and economic performance. Section N will evaluate the long-run debt-servicingcapacity. Finally Section V summarises the findings.

Date: 1988
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