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An Analysis of Pakistan's Vulnerability to Crisis

Author

Listed:
  • Safdar Ullah Khan

    (Bond University, Queensland, Australia.)

  • Omar Farooq Saqib

    (State Bank of Pakistan)

Abstract

The objective of this study is to analyze the vulnerability of Pakistan’s economy to crisis by evaluating the sustainability of its external and fiscal positions in the recent past. Following the emergence of current account deficits and fiscal imbalances in the last two fiscal years, skepticism on the sustainability of these fundamentals has grown. Therefore, this study uses Masson’s (1999) model of contagion to find the degree of susceptibility of Pakistan’s economy to crisis through assessing its external position and Bohn’s (1998) fiscal sustainability regressions to evaluate its fiscal position. Our findings are that the Pakistani fundamentals do not present an adverse scenario as its external balances signal low probability of crisis and its fiscal balances have remained sustainable both in the long run and in the recent past.

Suggested Citation

  • Safdar Ullah Khan & Omar Farooq Saqib, 2008. "An Analysis of Pakistan's Vulnerability to Crisis," SBP Working Paper Series 21, State Bank of Pakistan, Research Department.
  • Handle: RePEc:sbp:wpaper:21
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Currency crises; vulnerability; external balances; fiscal balances;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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