Impact of External Debt on Poverty in Pakistan

The key objective of this study is to evaluate the relationship between external debt and poverty in Pakistan. Time series data is taken from 1981 to 2015. The dataset is collected from the World Bank of World Development Indicators (WDI) data of Pakistan and various editions of the Economic survey of Pakistan. Poverty headcount ratio (HCR) is taken as dependent variable while percentage of debt services, percentage of total debt to GDP ratio and real wages are taken as independent variables. Johansen Co integration technique is applied because all the variables are stationary at first difference by the unit roots testing. The result shows that long run relationship exist between poverty head count ratio and all other explanatory variables. We suggest that government should reduce burden of foreign debts and spend this money on development projects of the country.