An Analysis Of Public Debt, Its Shariah Alternatives And Other Avenues For Resource Mobilization For Government
Author: Muhammad Naoman Khan


Pakistan is declared one of the highly indebted counties. This study is meant to review public debt situation in Pakistan. We have analyzed composition of public debt and change in composition over time. Next we studied impact of public debt on the economic growth. We have incorporated both GDP and GNP in this study as dependent variables. There is sound reason to include GNP. In Pakistan, amount of foreign remittances is significantly high making the effect on GNP important. On the other hand, various multinational companies (MNCs) are working in Pakistan emphasizing again the importance of including GNP in the study. Effect of domestic debt, external debt, debt servicing, inflation and openness of economy is studied for both GDP and GNP using appropriate econometrics techniques. It is found that variables are mixture of I(1) and I(0). So ARDL is used after confirming long run relation by using Bound test. Results show that debt accumulation is having negative impact on both GNP and GDP over long run in Pakistan. Presence of debt overhang effect is confirmed for both GDP and GNP in Pakistan. After analyzing results, we may suggest some Islamic/Shariah alternatives for public debt. These alternatives can be categorized on the basis of different modes such as Leasing, Musharkah, Mudarbah, Trade or a combination of two or more modes. Each category may further have different types of modes of finance which result in developing interest free debt alternative instruments. These alternatives may reduce the burden of public debt in the future. Shariah alternative can prove a source for stability of the economy as well as a tool to reduce inflation rate. Our final task is to suggest some other avenues to finance the government expenditure. Avenues other than public debt will cause to reduce the debt servicing burden in the future releasing resources for the development projects. These avenues include projects by Islamic banks, Investment funds, Public Sector Enterprises (PSEs), Local governments‟ surplus budgets and finally mines and minerals. Each mode is discussed in depth especially mines and minerals. Pakistan has 92 different types of minerals. Three minerals i.e., Petroleum, Gas and Uranium are owned and managed by Federal government. Other minerals are managed by the province of extraction of minerals. Reforms in this sector can significantly reduce reliance on public debt to finance the government expenditures.

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Supervisor: Saud Ahmed Khan

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