External Shocks and Domestic Adjustment in Pakistan 1970-1990

Abstract

A large current account deficit and an escalating external debt burden have been the characteristic features of Pakistan's economic performance during the decades of the seventies and eighties. The poor performance stemmed largely from the severity of the external shocks - large changes in external variables caused by sharp swings in the behaviour of international goods and capital markets - and the difficulty in adjusting to a worsening external scenario.· Some perspective of the magnitude of the shocks that Pakistan's economy had to suffer may be obtained from the following: the dollar denominated unit value of imports increased by 23 percent in 1973, by 72 percent in 1974 and by another 13 percent in 1975. Import unit value rose again, on an average, by 17 percent during 1979-1981; remittances increased dramatically during the second half ofthe seventies amounting to as much as the total value of exports during 1978-1986; debt service payments have risen sharply since 1982 averaging over 40 percent of exports; capital flows have declined to around 35 percent of exports after reaching a peak level in 1975-1976; economic growth in trade partner countries has slowed to around 3 percent per annum during 1982-1987 after a long period of fast expansion.1