BOPs is the basis of foreign aid. While, on the other hand, the budget deficit is the major cause of public debt. The rationale behind this is that level of debt, and the rate of growth of public debt should not unduly limit the flexibility of country's monetary, fiscal and exchange rate.
Pakistan's aid dynamics has undergone substantial changes since FY2007. Due to non availability of sufficient funds from the external sources, the financing focus shifted towards domestic sources that led to shortening of maturity profile of public debt. A confluence of unfavourable factors including lower GDP growth, devastating floods, severe energy shortages, haemorrhaging PSEs (public sector enterprises), high inflation, weak security situation and global economic recession resulted in higher fiscal deficits in the recent past.
Debt level depends on the debt paying capacity of the economy i.e. average income, export earnings, remittances and revenue generation capacity.
Debt burden can be measured in terms of stock ratio i.e. Debt to GDP and flow ratios i.e. Debt to revenue, external Debt to Foreign exchange Earnings. It is common practice to measure external debt burden as a percentage of GDP. However, it makes more sense to measure debt burden in terms Debt to revenue, external Debt to Foreign exchange Earnings of because they reflects more accurately on repayment capacity as GDP changes do not fully translate in to revenues particularly in case of Pakistan where taxation machinery is weak and taxation systems are also inelastic.
The total debt was Rs.10, 709 B as at June 30, 2012, and an increment of Rs.1, 788 B or 20% higher than the debt stock at the end of 2011. Government have taken Rs.1, 086 billion from Public debt and Rs.62 billion from foreign aid to finance operations. Approximately, US$ 3.3 billion were accumulated to the external debt stock owing to depreciation of US Dollar against other major international currencies and around Rs.27 billion was accumulated by depreciation of Pakistani Rupee against the United States Dollar. US dollar Depreciation against other major currencies caused public debt to increase by approximately US $3,300 million in the foreign currency component.
On the other hand, Increase in demands of the government budget during 2010-11 due to security meant decrease in the fiscal deficit. Secondly, lower GDP growth, energy shortages, lead towards a revenue shortfall; situation was complicated by the severe floods by putting additional burden on operations. But on the other hand, higher international prices for textile products had a positive impact on PTB (Pakistan Trade Balance).
Relationship of External Debt with GDP 外债与GDP的关系
Malik, Hayat, and Hayat (2010) analyze the relationship between foreign aid and economic development for the period 1972 - 2009 of Pakistan. The result shows that external debt is negatively relates to the economic growth. There results shows that increase in foreign aid will lead to decline in economic growth.
Hameed et al. (2009) on Pakistan explain the short run and the long run relationship between foreign aid and economic development. Annual time series data from 1970 to 2008 was taken to analyze the effect
