External Debt Essay

Foreign Aid or External debt is considered a significant source of income for developing countries. Pakistan has depended upon on foreign debt to finance its balance of payments deficit and saving investment gap. This deeply dependence on external resources became not controllable in late 1980s. Primary objective of this paper is to research the relationship between external debt and economic growth in Pakistan for the period of 1980-2015, using time series data and using the simple ordinary least square method. External debt significant relation with GDP and reserve insignificant relationship with GDP. Government expenditure significant relationship with GDP. External debt increased due to mismanagement of debt and political instability. Government should

Government should utilize the internal resources and design strong development plan to reduced external debt. Key points: EX, GDP, Reserve, GX, OLS.

Introduction

In developing countries broadly the debt collects as domestic savings are low and the payments deficits are high, therefore import of capital is needed to utilize the domestic resources. Currently Pakistan 's economy is risky due to unsustainable external debts. Debt task is a great challenge for Pakistan 's economic. Foreign aid and external debt was considered an important source of income for developing countries. From the late 1950’s current account deficit was considered normal. The countries facing current account deficit were aided to borrow from international community to expansion their economic growth. During the last fifty years the external debt problem is one of the main challenges faced by the developing countries like Pakistan. External debt and its compensations act as a problem to the economic growth and development of developing countries. In the past three decades it has been analyzed that external debt has been the major cause of decline in investment and the growth achievements of many nations. This external