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CSS Economics of Pakistan P-II QUESTION #1714
Question 1
Pakistan's rising public debt-to-GDP ratio — exceeding 70% in recent years — is most comprehensively explained by which combination of fiscal and macroeconomic factors?
  • Persistently high real interest rates on domestic government borrowing
  • Over-dependence on concessional bilateral and multilateral foreign loans
  • Structural primary fiscal deficits compounded by sharp depreciation of the Pakistani Rupee inflating external debt in local currency
  • All of these✔️
Correct Answer Explanation
Pakistan's public debt accumulation is driven by multiple reinforcing factors: (1) primary deficits — the government consistently spends more than it collects even before debt service, reflecting structural fiscal weakness; (2) high domestic borrowing costs — double-digit policy rates have made debt servicing a dominant budget item; (3) rupee depreciation — each depreciation episode dramatically increases the PKR value of USD-denominated external debt. All three factors have simultaneously operated to inflate Pakistan's debt burden.