Q8. Critically discuss why Pakistan’s economic growth continues to be a “Balance-of-Payments” constraint which is one of the core causes to keep the foreign exchange reserve under pressure. Do you think that Pakistan’s export performance remains the most relevant long-term challenge to alleviate the balance-of-payments constraint for sustained economic growth and explain radical structural reforms to improve export performance? 2023.

Pakistan’s economy has been facing a persistent balance-of-payments (BOP) constraint, which has put significant pressure on the country’s foreign exchange reserves and has limited its ability to finance its imports and support its economic growth. The BOP constraint is primarily caused by a combination of factors, including a large trade deficit, limited foreign direct investment (FDI), and a reliance on short-term borrowing to finance the deficit.

One of the core reasons for the BOP constraint is Pakistan’s limited export performance, which has been a persistent challenge for the country’s economic growth. Despite the country’s rich natural resources and a large pool of labor, Pakistan’s exports have remained low and have not kept pace with the growth of its imports. This has resulted in a persistent trade deficit, which has put pressure on the BOP.

To address this challenge and alleviate the BOP constraint, Pakistan must undertake radical structural reforms to improve its export performance. This requires a multi-faceted approach that addresses both demand-side and supply-side constraints. On the demand-side, the country must focus on improving its competitiveness by reducing the cost of doing business, improving the business climate, and promoting trade liberalization. On the supply-side, the country must focus on developing its human capital, strengthening its infrastructure, and promoting technological innovation.

In addition, the government must also focus on diversifying its export base, expanding into new markets, and promoting exports in high-value-added sectors such as IT services, pharmaceuticals, and engineering goods. Furthermore, the government must also address the long-standing challenges faced by the export sector, including lack of access to finance, limited access to technology and training, and the absence of an effective export promotion strategy.

In conclusion, Pakistan’s persistent balance-of-payments constraint is largely due to its limited export performance, which has been a persistent challenge for the country’s economic growth. To address this challenge and alleviate the BOP constraint, the country must undertake radical structural reforms to improve its export performance, focusing on both demand-side and supply-side constraints, and diversifying its export base and expanding into new markets.