The economy of Pakistan is passing through a phase of stagnation for the last many years. The decline in GDP and slowing down of the economy can be linked to many factors including domestic and global events. At domestic level, mismanagement of resources, widespread corruption, low human capital development, political instability, and inconsistency of the policies have adversely affected the growth of the economy and the development process in the country. The fluctuations in the exchange rate and drop in the prices of agricultural raw material (major source of income of developing world including Pakistan) significantly reduced the export earnings of the country. Rise in the energy prices (oil and electricity) increased the cost of production and resulted into the closure of many industrial units, which reduced the production capacity of the country. Moreover, the recession in the industrialised world, and financial crisis in the Far-Eastern economies badly affected our export earnings. Despite all efforts, government could not reduce the fiscal deficit and trade gap. The borrowing from external sources for different purposes could not generate enough income to service mounting debt. This increased the vulnerability of the economy to external shocks. As a result, GDP growth in 1998- 99 was only 3.2 percent, almost half of the growth rate in eighties.