Pakistan has experienced a mounting debt burden since the start of 1980s that was mainly the result of three core variables i.e. high interest rate payments, exchange rate fluctuations and the twin deficits1. This raised the question of debt sustainability (i.e. whether the government intertemporal budget constraint holds in present value term without change in fiscal policy). The dissertation aims to address the sustainability issue by developing a theoretical framework in accordance with the prevailing patterns of public finance and derive debt sustainability conditions for the economy of Pakistan The analytical framework developed is applied for empirical testing of debt sustainability, analysis of debt dynamics, simulation and sensitivity analysis to workout the most likely scenario of debt sustainability for the economy of Pakistan. These findings will also be aimed at comparing and validating the results obtained through the analysis of Traditional Debt Indicator Approach. Results reported reveal that the primary balances mainly contributed to the rise in debt ratios whereas the exchange rate factor has remained important throughout in raising debt ratio and the role of interest rate factor was marginal. On the external front primary current balances played a critical role in the rise in external debt ratios, whereas interest rate factor is held responsible for contributing towards the rise in debt to GDP ratio through out the period. The explosive growth of public debt in 1990s coupled with low growth in the revenues, especially in second half of the decade, increased the debt burden tremendously. By using various empirical approaches, it was found that both public and external debts remained Unsustainable during the period under consideration i.e. 1971-2005 and also validates the findings of the Traditional Debt Indicator Approach indicating debt ratio to be unsustainable. Supervisor:- Dr. Ather Maqsood Ahmed Co-Supervisor:- Dr. Shahnaz A Rauf