Open AccessExternal Debt Accumulation and Its Impact on Economic Growth in Pakistan
Author(s) -
Rifaqat Ali,
Usman Mustafa
Publication year - 2012
Publication title -
pakistan development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.154
H-Index - 26
ISSN - 0030-9729
DOI - 10.30541/v51i4iipp.79-96
Subject(s) - external debt , internal debt , debt levels and flows , debt , debt to gdp ratio , recourse debt , economics , senior debt , monetary economics , debt ratio , developing country , international economics , currency , financial system , business , economic policy , finance , economic growth
The accumulation of external debt is common phenomenon of thedeveloping countries and it has become a common feature of the fiscalsectors of most of the economies. A country with lower saving rate needsto borrow more to finance the given rate of economic growth. So externaldebt is obtained to sustain the growth rate of the economy, which isotherwise not feasible with the given domestic resources. Pakistan isone of the developing countries and faces serious debt problems,according to World Bank Report 2000-2001, Pakistan is among the HighlyIndebted Countries (HICs); because Pakistan’s present and future debtsituation is very grim. According to the World Bank total external debtmay be defined as debt owed to non-resident repayable in terms offoreign currency, goods or services. External debt is the composition oflong term debt (public and publicly guaranteed debt plus private nonguaranteed debt), short term commercial debt and International MonetaryFund (IMF) loans. Prior to early 1970s the external debt of developingcountries was primarily small and official phenomenon, the majority ofcreditors being foreign governments and international financialinstitutions offer loan for development project [Todaro (1988)]. At thesame time current account deficit was common which increased theexternal indebtedness of the developing countries, until when Mexico,despite an oil exporter, declared in august, 1992 that it could notservices its debt ever since, the issue of external debt and itsservicing has assumed critical importance and introduced the debt crisesdebate [Were (2001)].