External Shocks and Domestic Adjustment in Pakistan1970-1990

A large current account deficit and an escalating externaldebt burden have been the characteristic features of Pakistan’s economicperformance during the decades of the seventies and eighties. The poorperformance stemmed largely from the severity of the external shocks -large changes in external variables caused by sharp swings in thebehaviour of international goods and capital markets – and thedifficulty in adjusting to a worsening external scenario.· Someperspective of the magnitude of the shocks that Pakistan’s economy hadto suffer may be obtained from the following: the dollar denominatedunit value of imports increased by 23 percent in 1973, by 72 percent in1974 and by another 13 percent in 1975. Import unit value rose again, onan average, by 17 percent during 1979-1981; remittances increaseddramatically during the second half ofthe seventies amounting to as muchas the total value of exports during 1978-1986; debt service paymentshave risen sharply since 1982 averaging over 40 percent of exports;capital flows have declined to around 35 percent of exports afterreaching a peak level in 1975-1976; economic growth in trade partnercountries has slowed to around 3 percent per annum during 1982-1987after a long period of fast expansion.1