Since the advent of Neolibralism, debt has been construed as
means of policy reforms to achieve stability, liberalisation and
recovery from shocks. However, the other side of the picture has been
either ignored or underappreciated. That is the human cost of
indebtedness. Whether internal or external, indebtedness may have
significant implications for the living conditions of the masses, as it
leads to substantial deviation of resources towards debt management.
This paper attempts to assess the impact of indebtedness on poverty for
Pakistan. The impact of total, internal and external debt on poverty has
been evaluated separately. Using the data from 1973 to 2013, Johansen
Co-nintegration test reveals long run relationship between debt and
poverty. The results remain consistent when domestic and external debt
is taken separately. The long run impact of total, internal and external
debt on poverty is positive. Which means that for Pakistan debt leads to
increase in poverty. Further, it is evident that domestic debt has more
severe poverty implications as compared to external debt. These results
have two important policy implications; firstly, the overall levels of
debt have to be reduced and secondly, the issue of domestic debt
reduction takes priority. JEL Classification: I30, I38, F34, H36
Keywords: External Debt, Domestic Debt, Poverty, Johanson
Cointegration
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