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Modelling the determinants and Sustainability of Current Account of Pakistan

Author

Listed:
  • Ahmed Rafiq

    (College Education Department, Government of Sindh, Karachi-75270, Pakistan)

  • Jawaid Syed Tehseen

    (Applied Economics Research Centre, University of Karachi, Karachi-75270, Pakistan)

  • Tabasam Aftab Hussain

    (University of Poonch Rawalakot Azad Kashmir Pakistan)

  • Iqbal Muhammad Shahid

    (Department of Economics and Management Sciences, N.E.D. University of Engineering & Technology, Karachi 74900, Pakistan)

  • Gamli-Dovene Francis Komla

    (IIC International Program & FTMAS CONSULT, Ghana and IIC University of Technology, Kindom of Cambodia)

  • Iqbal Muhammad Javed

    (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.

Suggested Citation

  • Ahmed Rafiq & Jawaid Syed Tehseen & Tabasam Aftab Hussain & Iqbal Muhammad Shahid & Gamli-Dovene Francis Komla & Iqbal Muhammad Javed, 2023. "Modelling the determinants and Sustainability of Current Account of Pakistan," Zagreb International Review of Economics and Business, Sciendo, vol. 26(2), pages 97-112.
    • Handle: RePEc:vrs:zirebs:v:26:y:2023:i:2:p:97-112:n:1005
    DOI: 10.2478/zireb-2023-0016
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    More about this item

    Keywords

    Current Account; Fiscal Deficit; Sustainability; Time-Series; Pakistan;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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