Abstract:
This study is conducted to investigate the relationship of government debt alongside
other macroeconomic variables with Pakistan's economic growth from 1983 to 2022.
Regardless of the progress Pakistan has made between 2001 to 2018, economy is still
facing challenges of soaring inflation, current account imbalances, inefficient
government spending, and requiring IMF support. We have analyzed how economic
growth is affected by debt level, government expenditure, inflation, and current account
deficits (or surplus). For this objective, we have used secondary time series data from
the World Bank and IMF sources for 40 years, and analyzed using the Ordinary Least
Squares (OLS) method, we discovered positive and significant relation among
government debt and economic growth, for each 1% increase in debt level, there is
2.43% growth in GDP. However, there is a significant negative relationship of the
current account balance and economic growth. While, there is no significant
relationship found among government expenditure and inflation. The effective use of
debt is important for economic development. However, debt needs to be in controllable
levels. The current account deficits need to be addressed by reduction in imports and
enhancing exports. Study has limitations due to adoption of on annual data and ignores
short term relations. For future researches, other macroeconomic variables may be
studied. Study has insights for policymakers.
