The Role of Government Spending and Public Debt in Shaping Pakistan's Economic Growth: A Statistical Analysis

Abstract

Pakistan has yet to gather enough funds to cover its budget. As a result, twin deficits emerged, forcing the government to rely on domestic and international debt to fund development projects. Current study investigates the link between government debt, expenditure and economic advancement in Pakistan. Several sources, including the World Bank database, International Financial Statistics, Pakistan Economic Survey, and others, offered statistics on public debt, government expenditure, inflation, GDP growth rate, and interest rates for 41 years from 1980 to 2020. Autoregressive distributed lag model was used for econometric research. Study used unit root (ADF and PP) tests to confirm the data's stationarity. Findings of the study revealed that public debt and interest rates had a substantial negative link with economic growth. However, expenditure on both development and non-development and inflation had a significant positive correlation with GDP growth. The findings show that all of the identified variables substantially influence government spending. Pakistan's economic development is driven mainly by governmental spending, interest rates and debt. The study recommends that to secure long-term economic growth, the government should responsibly manage debt stocks.