Original scientific paper
https://doi.org/10.2478/zireb-2023-0016
Modelling the determinants and Sustainability of Current Account of Pakistan
Rafiq Ahmed
orcid.org/0000-0002-9229-758X
; College Education Department, Government of Sindh, Karachi-75270, Pakistan
Syed Tehseen Jawaid
orcid.org/0000-0002-5639-4788
; Applied Economics Research Centre, University of Karachi, Karachi-75270, Pakistan
Aftab Hussain Tabasam
; University of Poonch Rawalakot Azad Kashmir Pakistan
Muhammad Shahid Iqbal
; Department of Economics and Management Sciences, N.E.D. University of Engineering & Technology, Karachi 74900, Pakistan
Francis Komla Gamli-Dovene
; IIC International Program & FTMAS CONSULT, Ghana and IIC University of Technology, Kingdom of Cambodia
Muhammad Javed Iqbal
; Riphah International University Islamabad, MS Finance NUML, Islamabad, Pakistan
Abstract
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.
Keywords
Current Account; Fiscal Deficit; Sustainability; Time-Series; Pakistan
Hrčak ID:
310422
URI
Publication date:
30.11.2023.
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