Revisiting Balance-of-Payments-Constrained Growth in Pakistan
The balance-of-payments (BOP)-constrained growth rate is the maximum gross domestic product (GDP) growth rate above which unsustainable current account deficits emerge, forcing policymakers to implement contractionary measures that ultimately reduce GDP growth. We estimate Pakistan’s BOP-constrained annual growth rate to be 3.71 percent for the period 1996–2023, which is significantly lower than the estimate of 4.41 percent for the period 1980–2017. The BOP-constrained growth rate is most sensitive to changes in import income elasticity.