Over the years Pakistan has failed to collect enough revenues to finance its budget.

Consequently, it has been facing the problem of twin deficits and resultantly to finance their
developmental activities government has to rely on public external and domestic debt

The effect of public debt on the general level of prices

It is true that borrowing will create a deflationary effect only when it is considered as a bond
sale. Because the private sector uses its own resources for buying public bonds, therefore, the
private demand and the total demand are decreasing. This situation causes deflation by reducing
the general level of prices. However, the state purchases goods and services with the resources
that are collected from the sale of bonds or bills; thus the total demand increases due to public
demand. This situation causes inflation by increasing the general level of prices as a result of the
operation of various mechanisms.

The effect of public debt on income distribution

The effect of public debt on income distribution depends on which income groups burden with
debt costs and depends on which income groups are the obtained debt sources transferred to.
This effect usually occurs during the principal and interest repayments. In particular in the
internal borrowing, if the taxpayers and the lenders to the government are the same person or
organization, there will be no inequality in the income distribution. However, vice versa, if the
principal and interest payments related to public debt are paid by taxes collected from the
middle- to low-income groups, then there is a transfer of resources from the middle- and low-
income groups to the high-income group. In terms of external borrowing, the income distribution
to favor of those beneficiaries from public expenditures in the period which they were taken was
effected by the external debts positively. On the other hand, the external borrowing will affect
the income distribution for next generation due to the debt burden adversely (such as the
reduction of public expenditures and excessive tax payment). 

The effect of public debts on savings volume and investments

As long as the government canalizes to investing the savings that are collected by the way of
internal borrowing, national income will increase, and personal income and personal savings
tendency will increase. If the government transfers to budget deficit or consumption of the
resources which recollected by internal borrowing, it will reduce the private sector investment
amount by affecting the private sector’s total savings volume. This event is called crowding out.
The slowdown of national income growth as a result of the decrease in investments shows the
real burden of the financing with borrowing instead of tax on the next generation. When debt is
used to finance public expenditure, its real cost to society is the sacrifice in private sector
production

The effect of public debts on economic development

if the funds provided through borrowing for economic development can be canalized to
infrastructure investments (such as dams, roads, ports, mining, agriculture), they increase the
new investments through multiplier effect. As a result, national income and employment
increase; and accordingly economic development is ensured. Nowadays, less developed and
developing countries, which make the development effort, resort to external borrowing due to
insufficient internal financing sources. The positive effects of public debt relate to the fact that in
resource-starved economies debt financing if done properly leads to higher growth and adds to
their capacity to service and repay external and internal debt. In middle income countries,
governments use public debt as an important tool to finance its expenditures. Public debt is
considered as double-edged sword .For instance, effective utilization of public debt can increase
economic growth and enhance government to achieve macro-economic goals. Theoretically
financing the development projects through public debt can provoke a country to build its
productive capacity and increase economic growth (Cohen1993). Debts may be foreign and
domestic. Mismanagement of public debt reduces economic growth and become the biggest
hurdle for the economy, a case very common in developing countries.

Effect of Public Debt on Employment

In order to understand, within current economic systems, the impact of driving technological
forces on employment growth, it is important to analyze how technological determinants and
employment variables interact with public debt. In fact, the macroeconomic variable of the
public debt of countries affects, within the framework of the political economy of growth, the
government expenditure on R&D and on human resources that play a vital role to spur
employment growth in addition, the high/low level of public debt can affect available economic
and financial resources to design apt political economy of growth. modern economic literature
considers, more and more, the role of public debt and balanced-budget rules for spurring long-
run patterns of employment and economic growth

Effect of Public Debt on GDP

In 2018 Pakistan public debt was 225,435 million dollars, has increased 21,158 million since

2017.

This amount means that the debt in 2018 reached 71.69% of Pakistan GDP, a 4.64 percentage
point rise from 2017, when it was 67.05% of GDP.

If we check the tables we can see the evolution of Pakistan debt. It has risen since 2008 in global
debt terms, when it was 97,678 million dollars and also in terms of GDP percentage, when it
amounted to 57.16%.

According to the last data point published, Pakistan per capita debt  in 2018 was 1,122
dollars per inhabitant. In 2017 it was 1,036 dollars, afterwards rising by 86 dollars, and if we
again check 2008 we can see that then the debt per person was 593 dollars .

The position of Pakistan, as compared with the rest of the world, has worsened in 2018 in terms
of GDP percentage. Currently it is country number 144 in the list of debt to GDP and 60 in debt
per capita, out of the 186 we publish.

Pakistan: Evolution of debt

Date Debt Debt (%GDP) Debt Per Capita

2018 225,435 71.69% 1,122$

2017 204,277 67.05% 1,036$

2016 188,515 67.63% 974$

2015 171,306 63.32% 902$

Date Debt Debt (%GDP) Debt Per Capita

2014 155,061 63.47% 833$

2013 147,659 63.86% 809$

2012 141,819 63.24% 793$

2011 125,835 58.90% 718$

2010 107,242 60.58% 624$

2009 98,270 58.47% 584$

2008 97,678 57.16% 593$

2007 79,894 52.44% 505$

2006 73,719 53.72% 474$

2005 69,764 58.91% 457$

2004 66,810 63.23% 446$

2003 63,269 70.49% 431$

2002 59,353 76.10% 415$

2001 63,299 81.23% 451$

2000 61,184 76.80% 448$

1999 62,349 75.64% 467$

1998 54,567 66.96% 418$

 Date Debt Debt (%GDP) Debt Per Capita

1997 53,824 65.79% 422$

1996 54,334 65.49% 436$

1995 51,829 65.23% 427$

1994 49,613 72.96% 419$

http://www.finance.gov.pk/survey/chapters_15/09_Public%20Debt.pdf
1. https://countryeconomy.com/national-debt/pakistan

http://hrmars.com/hrmars_papers/The_Impact_of_Public_Debt_on_Economic_Growth_of_Pakis
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