Debt Thresholds and Economic Growth in Pakistan: Nonlinear Evidence from a Threshold-ARDL Model (1983–2023)

Abstract

This study examines how different threshold levels of public debt affect Pakistan’s economic growth and assesses the country’s overall debt sustainability. Debt can support economic growth when kept within sustainable limits, but it holds the economy back when countries resort to excessive borrowing. Using annual data from 1983 to 2023, the study employs a two-regime Threshold ARDL (TARDL) estimation approach to identify nonlinearities in the debt–growth relationship. The analysis identifies threshold ratios of 56.1% for total debt-to-GDP, 64.4% for total debt-to-gross national income, 245.27% for total debt-to-revenue, and 215.86% for total debt-to-exports of goods and services in Pakistan. Debt levels below these critical points generally support economic growth (with the exception of external debt indicators), whereas debt levels above them significantly constrain Pakistan’s growth performance. The findings stress that Pakistan should enhance its productive capacity, expand export potential, and improve debt management. It will ease its debt burden and protect long-term macroeconomic stability.