What are the External Debts and its effects

Foreign Aid, which is also called External debt is known to be a very important source of income for the countries that are currently in their development stage. Pakistan is one of the countries who rely much on foreign aid for the purpose of financing its balance of payments (BOP) deficit and also for the sake of the saving-investment gap. All of this heavy dependence on foreign aid turned out of control first in the late 1980s. External Debts are negatively and significantly related to the growth of Pakistan’s economy. Growth in foreign debts is very threatening for the future of the country’s economy. It can be compared with stepping in a marsh – the more time you spend in it, the deeper it will swallow you.

Accumulation in the stock of debts is known to be the prime issue which is faced by both developed countries and developing countries. The developing countries are more likely to face this problem since they need to take loans and debts for keeping the pace of their development process. However, the funds that are borrowed are required to be properly allocated for the productive expenditures and should be in accordance with their repayment ability. Even though debts can be considered useful for the growth of the economy, it is very important to closely monitor the dependence on debts and reliable plans and strategies should be adopted for making the country more capable of repaying those debts.

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