As we enter the new century, international efforts converge to the fundamental objective of significantly reducing poverty across the world. It is commonly accepted that economic growth is needed to achieve this goal. But it is not clear how much growth is needed, and how much external financing is required to sustain higher growth. There is an extensive and growing literature on the impact of growth on poverty, and on the relationship between external debt and growth. However, there are very few studies that directly link the external debt and poverty of developing countries like Pakistan. This thesis thus endeavors to bring together the three areas of study for a developing country like Pakistan. The key objective is to investigate whether external debt plays a crucial role in influencing the growth and poverty levels in Pakistan. It is the consensus that the large external debt is a major cause of poverty through its effects on economic growth and human development. Some have even advanced the hypothesis that external debt is the cause of poverty. But the results of this thesis are different from the consensus stated above. According to the results of the present thesis, the external indebtedness has a considerable contribution in reducing the poverty of Pakistan. However, it has no desirable impact on the growth. These results, together with the findings of Abrego and Ross (2001), comply with a new consensus (presented in the Moneterry Consensus and the Johannesburg Conference among the members of the international community): the longer-term goal being focused on is accelerated poverty reduction, which needs to be supported by additional aid flows and the borrowed foreign exchange, which are increasingly being provided in the form of grants and loans combined with debt relief for countries that can demonstrate effective utilization of these resources and maximize the profit to the poor. Supervisor:- Dr. Eatzaz Ahmed