The Foreign Capital Requirements and External Indebtedness of a Developing Country: A Case Study of Pakistan
Pakistan, like any other developing country, is committed to achieving self-sustaining growth, when it will be possible for the economy to grow at a rate of 5 to 6 per cent per annum without receiving external capital on concessionary terms. The role of external capital is to enable the economy to grow fast by permitting a growth of investment which is more rapid than domestic saving will support. A fast rate of economic growth leads to a higher level of domestic saving, which in turn makes the growth process more self-supporting. However, foreign capital-financed growth is not an unmixed blessing. As growth is a long-term problem, long periods of borrowing and a high level of debt and debt service can hardly be avoided. While capital inflow is net addition to domestic resources, foreign borrowing continues for a longer period because domestic savings are still insufficient to pay both for domestic investment requirements and debt service on past loans. It follows that, given the terms on which foreign capital is obtained (i.e. the rates of interest and amortisation), the economy must be able to save an increasing proportion of additional income in order to achieve an early ‘independence’ from foreign indebtedness.
KeywordsForeign Capital Planning Commission Capital Inflow Debt Service Perspective Plan
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