Essay On Foreign Debt In Pakistan

Foreign debt also known as the external debt is the obtaining of loan from another country and needs to be paid within a specific period of time. In times of difficulty, Pakistan takes loan from World Bank or the International Monetary Fund (IMF) in order to ease the pressure of negative balance of trade.

 Role of Foreign Debt in Pakistan

There comes a time when every country is in reliance of foreign debt. Foreign debt becomes highly significant when a government’s expenditure exceed the revenue received by a government. In other terms, it experiences a budget deficit. Its dependence can also be due to the running out of the national reserves or the ever growing imports of the country. Borrowing of loans is essential at times of war situations

Remittances have provided an immediate and an increasing flow of foreign exchange and helped to pull of the burden on the Pakistan’s reserves. Pakistan takes loan particularly from United State, France, Canada and United Kingdom. The period of military aid can be divided into three periods for Pakistan; the Ayub’s regime, the Zia-ul-Haq period, when Soviet Union invaded Pakistan and the sepetember9/11 attacks which gave growth to the war on terrorism. Since the past few years, Pakistan’s dollar reserves have run out and in order to prevent from further damage, IMF plays a huge role in lending money to Pakistan. It becomes necessary for broadening the tax base, increasing revenues, deregulation and for strengthening the reforms. Pakistan’s debt servicing increased in 2004 because it paid $1.4biliion to the Asian development Bank. Pakistan has spent almost half of the budget in debt servicing which means that it will be unable to repay its loans. It is used to be paid on interest on loans or interest on debts. An individual un- able to make payments cannot service one’s debts. A debt can be forgiven if it is provided with repayment in local currency or reduced