Pakistan has been facing sever balance of payment crisis, mainly due to the fact that country has not been able to come up with proactive policies to hedge itself against external shocks. This proactive approach remained absent mainly because country has no indicator which can correctly reflect the building external vulnerabilities. This situation could have been avoided with the help of indicator, which should ideally be the aggregated position of all the relevant economic indicators. This study is an attempt to construct such index for Pakistan – called External Vulnerability Index. While doing the literature review, the research gaps found are the use of dynamic models and disaggregated approach to construct an aggregated index. This study has approached the aggregate vulnerability index by using multiple sub-indices to mitigate the chances of neutralization of sources of vulnerability. To bridge the research gap, this study has utilized Principal Component Analysis which provided static relationship between variables and Johansen Co-integration approach which provided dynamic results for long and short run as well also provide the speed of adjustment from disequilibrium to equilibrium. The inspection of EVI constructed through Principal Component Analysis. Every time the EVI was heading towards the upper band Pakistan ended up which approaching IMF or other International Financial Institutions for the bailout. The results of EVI is constructed through Johansen Co-integration is quite similar to the EVI constructed through PCA. There is an upward trend in EVI that was followed by bailout packages form IMF or other IFI’s. the upward pressures could be seen in 2004, 2008, 2013, 2018 and in each of these years Pakistan approached IMF for bailout package. Results reveal that constructed EVI is a good Early Warning indicator for the Balance of Payment crisis of Pakistan. Supervisor:- Dr. Abdul Jalil