Exchange Rate Volatility and Balance of Payments Adjustment in Pakistan

Fatima Mehak

Master's thesis

Abstract:

This study investigates how exchange rate volatility affects Pakistan's balance of payments (BOP). It draws attention to Pakistan's recent fluctuating currency rates and how they have affected the country's economy, especially by reducing foreign exchange reserves and widening the trade imbalances. With an emphasis on exports, imports, and the overall effect of exchange rate volatility on the balance of payments, the study intends to analyze the relationship between exchange rate movements and Pakistan's current account balance. The study's conclusions have important policy implications for regulating currency rate volatility, fostering exports, and enhancing the balance of payments. The paper will provide a review of the literature, a theoretical framework, and empirical analysis before drawing the conclusion that stabilizing exchange rates, fostering exports, and managing volatility may or may not improve Pakistan's balance of payments with an aim to promote overall economic stability. The study's conclusions may also be applicable to other nations dealing with comparable difficulties in maintaining their balance of payments in the face of exchange rate changes.

Abstract:

This study investigates how exchange rate volatility affects Pakistan's balance of payments (BOP). It draws attention to Pakistan's recent fluctuating currency rates and how they have affected the country's economy, especially by reducing foreign exchange reserves and widening the trade imbalances. With an emphasis on exports, imports, and the overall effect of exchange rate volatility on the balance of payments, the study intends to analyze the relationship between exchange rate movements and Pakistan's current account balance. The study's conclusions have important policy implications for regulating currency rate volatility, fostering exports, and enhancing the balance of payments. The paper will provide a review of the literature, a theoretical framework, and empirical analysis before drawing the conclusion that stabilizing exchange rates, fostering exports, and managing volatility may or may not improve Pakistan's balance of payments with an aim to promote overall economic stability. The study's conclusions may also be applicable to other nations dealing with comparable difficulties in maintaining their balance of payments in the face of exchange rate changes.

Keywords

Pakistan, Balance of Payment, Exchange Rate Volatility

Keywords

Pakistan, Balance of Payment, Exchange Rate Volatility, Imports, Exports, Current Account Balance, Trade Deficit, Economic Stability, State Bank of Pakistan, Foreign Exchange Reserves, Competitiveness

Language used: English

Date on which the thesis was submitted / produced: 12. 8. 2023

Thesis defence

• Date of defence: 3. 10. 2023
• Supervisor: Klára Čermáková
• Reader: Pavel Štěpánek

Vysoká škola ekonomická v Praze

Master programme:
Economics and Public Policy