1. Introduction
The situation of foreign debt has possibly become most alarming problem for developing nations of the world
after the problem poverty and surety of human resource development at the start of this millennium. It has
been observed that poorest countries of the world are heavily indebted. In these highly indebted poor
countries (HIPCs), revenue resources and earnings generated from exports are being used for debt servicing as
a replacement for being utilized for health, education and population welfare. Neither the resources are used
to spend for investments and growth of economy or for scientific research and development (Aslam, 2001).
The term ‘debt sustainability’ refers to the level of debt which permits a country to fulfill its present andupcoming servicing obligations without any rescheduling or accumulation of accruals. Sustainable debt is a
level of debt where debt ratio turns down or remained unaffected, and the fiscal deficit is not necessarily to be
at zero but it should not push the debt ratio to boost or move faster than growth rate of GDP. Literature on
issue of public debt does not consider it a dilemma rather it consider mismanagement and unsustainable
character of public debt as a trouble (Fan, 2007).
The primary objective and aim of this study is to test the long-run relationship between surplus-to-GDP and
public liabilities-to-GDP.