Corporate and banking sector profitability attracted cumulatively foreign direct investment of $ billion, remittances at $ and net portfolio flows were $ billion. Since late 2004 domestic vulnerabilities reemerged and mounted as the fiscal and external current account deficits rose above 4% of GDP and induced inflationary pressures. Risks to macroeconomic stability just after few years of robust growth and stability are not surprising.
A quick review of Pakistan’s economic history reveals that episodes of strong economic growth in the 1960s and then in 1980s were both followed by the slowdown in growth and weaknesses in macroeconomic indicators. Why is Pakistan vulnerable to these cyclical downturns? Why cannot the country have sustainable economic performance?