<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>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.</p>
</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.

Modelling the determinants and Sustainability of Current Account of Pakistan

University of Poonch Rawalakot Azad Kashmir

Department of Economics and Management Sciences

N.E.D. University of Engineering & Technology

Riphah International University Islamabad

Zagreb International Review of Economics and Business

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

{"article-title":"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...

Modelling the determinants and Sustainability of Current Account of Pakistan

Published Online: Dec 06, 2023

Page range: 97 - 112

DOI: https://doi.org/10.2478/zireb-2023-0016

Keywords
Current Account, Fiscal Deficit, Sustainability, Time-Series, Pakistan

© 2023 Rafiq Ahmed et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Modelling the determinants and Sustainability of Current Account of Pakistan

Published Online: Dec 06, 2023

Page range: 97 - 112

DOI: https://doi.org/10.2478/zireb-2023-0016

KeywordsCurrent Account, Fiscal Deficit, Sustainability, Time-Series, Pakistan

© 2023 Rafiq Ahmed et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Keywords
Current Account, Fiscal Deficit, Sustainability, Time-Series, Pakistan