Overview of the Economy

2009

2015

2012

2 This study investigates the determinants of current account deficit in Pakistan by using the annual time series data for the period 1976 to 2010. The cointegration results suggest the positive and significant long run relationship of current account deficit with exchange rate, trade deficit and fiscal deficit, while significant negative relationship is found with external debt and private saving. The error correction model also confirms the significant positive relationship of current account deficit with exchange rate, trade deficit and fiscal deficit in short run. The Granger-causality test shows the bidirectional causality run from exchange rate and external debt to current account deficit. However, unidirectional causality is found from current account deficit to external debt and fiscal deficit. It is recommended that government needs to be cautious in financing its fiscal deficit. Savings habits should be increase to narrow the investment gap in economy.

This study investigates the determinants of the current account deficit in Pakistan by using the annual time series data for the period from 1976 to 2010. The cointegration results suggest the positive and significant long run relationship of the current account deficit with the exchange rate, trade deficit and fiscal deficit while a significant negative relationship is found with external debt and private saving. The error correction model also confirms the significant positive relationship of the current account deficit with trade deficit and fiscal deficit in the short run. The Granger-causality test shows the bidirectional causal relationship of exchange rate and external debt with current account deficit. While, unidirectional causality is found from current account deficit to trade deficit and private savings. It is recommended that the government needs to be cautious in financing its fiscal deficit. Savings habits should be increased to narrow the investment gap in economy.

Speech Delivered at the Adam Smith Institute, Thun, …, 2006

Can Fiscal Policy Influence Current Account Deficit in Pakistan, 2020

The present study examined the impact of fiscal policy on the current account in Pakistan taking into consideration the data set from 1991 to 2018. The analysis is conducted using the Vector AutoRegression (VAR) approach. The results specify that fiscal policy shocks lead to an improvement in the current account balance and depreciate the real exchange rate, supporting the twin-divergence hypotheses. It is suggested that the government should focus on the polices to improve investment, which not only helps to minimize fiscal deficit but also leads to long-run growth.

2005

During the last five years, Pakistan has traversed the road from a difficult default situation on its external payments to a vigilant program under the International Monetary Fund and finally reestablished access to international capital markets. GDP growth rate has exceeded 6 percent, inflation had remained under control for four out of five years, fiscal deficit has been reduced significantly, public debt ratios have declined, external debt burden has been lowered, exchange rate has remained stable, exports have almost doubled, tax revenues are recording double digit growth, interest rates had never been at such low levels in the history, remittances of Pakistanis overseas have multiplied by a factor of four, foreign exchange reserves have expanded twelve times from their 1999 level and unemployment is on a downward slide.

This paper critically analyzes short-term effects of budget deficit on money supply, private and public investment, out put, balance of payment, international reserves and unemployment. Annual data for the period 1960-2005, taken from Economic Survey of Pakistan (various issues) and International Financial Statistic (2003) is used for analysis. Error Correction Mechanism (ECM) is used for estimation. The study revealed that short run changes in money supply is positively related to short run changes in foreign reserves. The short run change in money demand is positively related to short run changes in income. The short run changes in output is positively related to short run changes in consumption expenditures, private investment, public investment, and balance of trade. It is negatively related to short run changes in real rate of interest. Short run changes in private and public investment is positively related to short run changes in output. Short run changes in export is positively related to short run changes in output, relative prices of export, and exchange rate. Short run change in import is negatively related to short run changes in exchange rate. Short run change in unemployment is negatively related to short run changes in output growth (GDP). Based on findings of the study it is recommended that long-term private/public investment policies, can gain better result in economic growth. Export sector needs more attention in term of quality standard, price control, and internationally adopted marketing strategies. Skill development may also accelerate employment generating capacity of output growth.