Burgeoning Public Debt and Unemployment in Pakistan
DOI:
https://doi.org/10.54938/ijemdss.2026.05.4.799Keywords:
Public Debt, Unemployment, ARDL, Cointegration, Error Correction ModelAbstract
Public Debt and Liabilities of Pakistan has approached 99.4 trillion rupees by the end of FY 2026 causing serious macroeconomic implications for the economy. More than half of annual revenues go to debt servicing, leaving scarce resources for development and employment creation. This study has empirically evaluated the impact of public debt on unemployment in Pakistan using the annual time series data from 1991 to 2025. Among the control variables, per capita income, workers remittances inflows and inflation rate were included. Along with estimating the relationship for total public debt, the study has also estimated impact of domestic and external public debt on unemployment in Pakistan. Based on stationarity tests applied on the variables included in the models, ARDL estimation technique was selected to test the hypotheses. The results showed that public debt has a significant and positive effect on unemployment in Pakistan during the data period of the study. Further, domestic and external debt separately incorporated as independent variables showed that domestic debt is worsening unemployment rate more than external debt in Pakistan. The control variables per capita income and workers' remittances showed the negative and significant effect on unemployment, whereas, the coefficient of inflation was found insignificant. To support the validity of empirical findings the relevant diagnostic tests were performed. The policy recommendation of the study is that prudent debt management along with its developmental use for enhancing the efficiency of the economy through investing in human development and physical infrastructure is important for curtailing the unemployment rate in Pakistan. The workers remittances through formal channels need to be promoted along with its purposeful use for investment and job creation. Inflation has insignificant but real per capita income has significant and negative effect on unemployment which allows policy makers to bring balance between pro-growth and stabilization policies in Pakistan.
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