Impact of Government Debt and Macroeconomic Indicators on Economic Growth in Pakistan

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.