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Business Review

Abstract

In most of the developing countries financial sectors are characterized by limited availability of loanable funds. Public sector borrowing leads to crowding out of the private sector as well as high interest rates and inflation. In Pakistan, government has relied more on borrowing from the domestic sources as well. The study explores the impacts of internal debt on private investment in Pakistan applying the OLS technique for the period of 1972 to 2009. The study indicates that the stock of internal debt and debt servicing affects the private investment negatively in Pakistan. This implies that internal debt and internal debt servicing crowd out private investment in Pakistan due to shallow financial system and underdeveloped financial markets. The study also suggests some polices to retire the internal debt which includes the privatization of state owned enterprises, use of externally borrowed resources and the foreign exchange flows from external trade.

Keywords

Internal debt, Private investment, Government expenditures, Debt servicing

Creative Commons License

Creative Commons Attribution 4.0 International License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Published Online

March 02, 2021

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