Assessing The Impact Of Financial Reforms On Pakistan’S Economy

As in many other less developed countries, policy makers in Pakistan have accepted a series of neo-liberal reforms. Included among these are financial sector reforms such as interest rate liberalization.1 We demonstrate in this paper that there is very weak support at best for the neo-liberal hypotheses concerning financial liberalization and that such liberalization is regressive. McKinnon, (1973); and Shaw, (1973); were the major advocates of financial reform. They argued that financial repression in the form of controlled, and hence often negative, real interest rates reduced incentives for saving and hindered financial inter mediation. Liberalizing and allowing positive market driven interest rates would channel funds from consumption, cash holdings, less productive self investment, and overly capital intensive investments to more productive investments.