Public and external debts in Pakistan

What is debt?
Debt is the amount of money borrowed by one party, from another. A debt arrangement gives the
borrowing party permission to borrow money under the condition that it is to be paid back at a
later date, usually with interest. In simple words, debt is money borrowed from another party, for
something you can't afford.
What is meant by public debt?
Public debt is the total amount, including total liabilities, borrowed by the government to meet its
development budget. ... The sources of public debt are dated government securities (G-Secs),
treasury bills, external assistance, and short-term borrowings.
What is meant by external debts?
It refers to money borrowed from a source outside the country. External debt has to be paid back
in the currency in which it is borrowed.
Difference between the two debts:
Government / Public debt is simply debt that is owed by the government. External / Foreign debt
is debt that is owed to foreigners.
Is debt financing or creation always bad?
However, debt financing in the early stages of a business can be quite dangerous. Almost all
businesses lose money before they start turning a profit. And, if you can't make payments on a
loan, it can hurt your business credit rating for the long-term. Sometimes we have to explain that
debt is not always a bad thing. ... A good debt is one that represents a sensible investment for the
financial future of your business. It is one that leaves the business better off in the long-term,
without having a negative impact on your overall financial position.
Fiscal deficit of Pakistan:
In its April 2021 Monthly Economic Update and Outlook, the ministry of finance has raised
concern on account of third wave of the Covid-19 pandemic threatening economic concerns and
putting pressure on recovery, but said timely government decisions and small lockdown policy
were helping the economy to keep its pace of recovery.
The ministry said the government was maintaining fiscal deficit despite higher mark-up
payments and pandemic-related expenditures. “The fiscal deficit has been contained to 3.5pc of
GDP during July-February FY2021 compared to 3.7pc of GDP last year”.

The government borrowing from banking and non-banking sector and printing new
currency is called deficit financing. Deficit financing shows the difference between
projected expenditure and projected spending. To fill the gap of government borrows
from 1) state bank of the country 2) borrow from commercial banks 3) borrows from
non-financial sector such as saving centers, insurance companies 4) the last source is
printing new notes known as deficit financing.

Deficit financing is a situation where government spends more money than its revenue
collection. Deficit financing is used for different purposes the main purpose of deficit
financing is used to end the recession when the economic activity slowdown in order to
retrieve the economy in the better situation. In the third world countries like Pakistan
the deficit financing becomes the requirement due to bad governance, insufficient
spending policies, corruption, tax evasion, and insufficient tax collection.