PUBLIC AND EXTERNAL DEBT SUSTAINABILITY IN PAKISTAN (1970s – 2000s)

Apart from reporting the traditional debt ratios, two theoretical models are used to derive and assess the necessary and sufficient conditions for public and external debt sustainability of Pakistan. Our main findings are that the primary fiscal and current account imbalances were the main causes of public debt sustainability issue. Both the public and external debt ratios have remained far from the sustainable levels during 1970s to 2000s. Results based on debt sustainability conditions indicate that although the necessary condition of debt sustainability holds, the sufficient condition for debt sustainability is not met throughout the period except for a brief period of first half of 2000’s. This improvement in debt sustainability indicators could not be sustained in the subsequent period and have worsened lately which is a source of concern.