First Estimates for household debt and indebtedness in Pakistan (PP-77)

Publication details

  • Tuesday | 01 Jun, 2021
  • Sajid Amin Javed, Waqas Imran
  • Policy Briefs/Papers
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This study provides the first-ever estimates of the size of household debt, indebtedness and financial solvency of indebted households at national and subnation level as well as for different income quintiles in Pakistan. The estimates are based on household data from different rounds of Household Integrated Economic Survey (HIES) conducted from 1998-99 to 2018-19. Our estimates show that the total stock of household debt in Pakistan increased more than five times and stood Rs. 1162.78 billion in 2018-19 compared to 227.80 billion in 1999. Over the same period, the annual volume of household debt increased s more than nine folds. Most importantly, 85% to 95% of borrowing was done form informal credit market.

On average, one-fifth of the households were found to have been in debt over the period of 2005-06 to 2018-19. Estimates for 2018-19 show that incurrence of borrowing in poorest 20% population was 2.45 times higher than richest 20%. Only one fourth (26.48%) of indebted households were able to repay the debt in 2017-18 whereas the rest three fourth defaulted. This shows a serious level of financial stress in indebted households. Around one-fifth (19.33%) of households, who have borrowed, are overindebted. The number of overindebted households in the poorest 20% is 2.45 times higher than the richest 20%.

Alarmingly, around half of the total household debts (47.5%) are unsustainable. The debt-to-income ratio for these households is greater than 30%. The government needs to design targeted interventions to support the poor households trapped in debt. The patterns and structures of household debt have implications for monetary policy. The State Bank of Pakistan, therefore, must integrate the data into its decision-making process/models. The robust and reliable data and research on household debt and indebtedness is in fact the need of hour.