Current Accounts Deficits Sustainability: Implications of Intertemporal Foreign Borrowing Constraint for Pakistan (original) (raw)

The Current Account Deficit Sustainability: An Empirical Investigation for Pakistan

The Pakistan Development Review

The existence of large and persistent current account deficit is always viewed with great concerns, as it usually leads an economy to a state of insolvency due to building up excessive net foreign debt. As the current account deficit is a persistent feature of Pakistan’s economy, therefore, it becomes essential to empirically investigate, whether this deficit is sustainable or not. To this end, the present study has applied two alternative approaches, namely, the intertemporal approach to the current account and the intertemporal solvency approach, in order to get more convincing evidence on the sustainability issue in Pakistan using the time series data over the period 1960 to 2012. From the perspective of both the approaches, Pakistan’s current account deficit is on a sustainable path and the macroeconomic policies of the country remained effective in securing it from any external sector crisis. JEL Classification: C32, F32, F41 Keywords: Current Account Deficit, Intertemporal Bud...

Dynamics of Current Account Deficit: A Lesson from Pakistan

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.

Dynamics of Current Account Deficit: A Lesson from Pakistan First Author

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.

Modelling the determinants and Sustainability of Current Account of Pakistan

The study investigated the determinants of the current account deficit from 1976 to 2020 for the economy of Pakistan, and its sustainability. The persistent deficit is necessary to be sustainable if it will be paid off shortly otherwise it will pile up external debt. The conventional methodology concluded that current account deficit (CAD) of Pakistan is unsustainable, albeit one measure suggests sustainability. There is cointegration among variables and domestic saving, external debt, fiscal deficit and trade deficit has positive whereas exchange rate and worker's remittances have a negative relation with the current account, all the results are significant. The negative sign of the error correction term confirms restoration of equilibrium and it is also significant. Bidirectional causality is reported between the worker's remittances, exchange rate and external debt with CAD. Unidirectional causality is seen from CAD to trade deficit and fiscal deficit. The diagnostic tests of the model confirm robustness. The government should favour an investment-friendly environment to increase economic activity in the country besides improving domestic savings and reducing the external deficit.

Macroeconomic Policies and Management of Debt, Deficit, and Inflation in Pakistan

The Pakistan Development Review, 1996

The study attempts to analyse the sustainability of fiscal policy in Pakistan. Alternative foreign debt and domestic debt strategies were analysed for formulating meaningful policy guidelines. Such analysis was made consistent with other macro-economic variables like growth of GNP, inflation, and interest rates on debt. Alongwith the identifications of sustainable deficit, required deficit reduction in the actual fiscal deficit under appropriate assumptions was also estimated for three time periods: the 1980s, 1985–95 (recent past), and 1993–98 (the 8th plan period). The averages of the sustainable deficits for the above- cited periods under alterantive scenarios were estimated by utilising a sustainable deficit model for Pakistan. Our empirical findings indicate that Pakistan has been following such macro-economic policies pertaining to fiscal deficit as are not consistent with sustainable deficit. For instance, during the 1980s, deficit of about 4.2 percent of GNP was sustainable ...

PUBLIC AND EXTERNAL DEBT SUSTAINABILITY IN PAKISTAN (1970s–2000s)

Pakistan Economic and Social …, 2009

Abstract. Apart from reporting the traditional debt ratios, two theoretical models are used to derive and assess the necessary and sufficient conditions for public and external debt sustainability of Pakistan. Our main findings are that the primary fiscal and current account imbalances ...

Can Fiscal Policy Influence Current Account Deficit in Pakistan

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.

The Impact of Time and Regime on External Debts of Pakistan: An Empirical Study

The focus of this research is in the area of Financing / Loans acquired by Pakistan over the decades. This study is very important for forecasting the future of Pakistan’s financial strength. The data was collected from the State Bank of Pakistan, period from 1949 to 2010. The findings from this research provide the evidence that the external debts are growing in a very fast rate, which will create a great hurdle in coming future for Pakistan. The main conclusions drawn from this research is that the external debts are growing at an average rate of 14.40% per year and also demonstrated that if external debts increase by PKR 1 million in a year, in the next year it will increase by PKR 1.155 million. This research recommends that the outstanding debt can be taken care a special attention when fiscal and monetary policies are made in which external debt repayment should be given high importance along with the strict control over corruption. Government must introduce easy trade policies, which may boost up the exports in order to generate balance of trade, which may help in repaying the external debts.