The Study of Aid Dependency and External Debt on Pakistan’s Economy

Abstract

The study estimates the condition of Pakistan’s external debt using the three gap models i.e., Trade Deficit, Fiscal Deficit and Saving-Investment Gap. The main findings of the paper suggest that there are a number of financial problems in Pakistan’s economy, which have weakened the financial muscle of the country. The shortfalls are financed by external debt which is created severe negative impact on Pakistan’s economy. Pakistan has plenty of problems which have contributed to this aid and debt dependency. The financial crises started from 9/11 which forced Pakistan to be a key ally to United States. All this deteriorated economy by fiscal deficits, capital flight, decreased FDI and increasing trade deficits every year. Certain debt indicators have also examined which magnify the worst financial crises in Pakistan’s economy. Each and every Pakistani has now been trapped in a debt trap with a total amount of more than Rs. 9 Trillion, where additional debts and aids are the only source for the government to meet its expenses.

Keywords: Economics; External Debt; Fiscal Deficit; Aid; Finance; Pakistan; Trade Deficit