Economists typically use multiple indicators to assess the burden of external debt, such as the ratios of the stock of debt to exports and to gross national product, and the ratios of debt service to exports and to government revenue. As opposed to those methodologies, this article examines the Pakistan’s external debt position using a market based approach which analyzes the marginal costs of external debt as indicated by the yields on the country’s Eurobonds and the spreads on the Credit Default Swaps (CDS) traded in the international markets. The results show a sharp decline in the yields on the Pakistani Eurobonds from their peak reached during the global financial crisis (GFC) period and this decline was largely driven by quantitative easing and the resultant low interest rates in the international debt markets. Also, the continued decline in the yields in the more recent period, 2013-2017, was due to strengthening of the county’s borrowing capacity over the period. The analysis also shows that Pakistani yields seem to be converging to yields for other Asian countries, even though that the yield-spreads between Pakistan and others countries are still substantial. In conclusion the decrease in bond yields and CDS spreads may signal that the country’s external debt is currently at sustainable levels.
KEYWORDS: External debt, Debt management, economic growth, Pakistan.
JEL: H63.

This study revisits the relationship between the fiscal deficit and economic growth in Pakistan to determine whether there exists a threshold fiscal deficit that might serve as a benchmark for policymakers aiming to promote growth through fiscal expansion. We apply the smooth transition autoregressive model to time-series data for the period 1972–2014. The empirical analysis shows that the threshold level of fiscal deficit is 5.57 percent of GDP, above which the deficit has a negative impact on growth. Overall, the fiscal deficit has a negative impact on economic growth, mainly because it has tended to remain above the threshold level. However, there is room for fiscal policy to promote growth, provided the fiscal deficit is kept below the threshold level and public spending is channeled into productive investments that raise the country’s long-term growth potential.
KEYWORDS: Fiscal deficit, threshold level, economic growth, STAR, Pakistan.
JEL: O47, H12, C24.

In this article it is argued that Pakistan has had a consistently overvalued exchange rate and the policy with regards to management of the exchange rate has undergone a significant change in recent years. We show that prior to March 2013, the policy target of the exchange management was stability of the real effective exchange rate. However, during the tenure of the current government, the policy target for exchange rate management seems to have been stability of the nominal exchange rate against the US dollar. As the currencies of Pakistan’s major trading partners (UK, Europe and China) have depreciated against the dollar during this period, the real effective exchange rate has appreciated by over 20 percent since the time that the current policy makers took office. Overvaluation in general and the recent reversal in the exchange rate management policy in particular have had an adverse impact on exports and the manufacturing sector. This not only has serious negative consequences for the long term, growth of the economy, but has greatly increased the short-term risk of a balance of payments crisis.
KEYWORDS: Pakistan, exchange rate, overvaluation.
JEL: F31, F33, O24, F63.

This article investigates monetary policy effectiveness in Pakistan in the presence of external uncertainties stemming from the economic growth of developed economies and international oil price movements. We estimate a structural VAR model to gauge the impact of international oil prices and global demand on key macroeconomic variables in Pakistan. Our findings suggest that monetary policy remains an effective tool for controlling inflation. An increase in oil prices (supply shock) leads to higher real policy rates, real exchange rate depreciation, an economic growth slowdown and rising inflation. A global demand surge leads to higher real policy rates, real exchange rate appreciation, economic growth and rising inflation. Real policy rates adjust upward in response to inflation and real exchange rate shocks. The real exchange rate depreciates if inflation increases. This indicates that the monetary authorities in Pakistan are generally able to stabilize consumer prices and real exchange rates in the economy.
KEYWORDS: Monetary policy, real exchange rate, inflation, oil prices, Pakistan.
JEL: E52, E58, E22, E47.

Macroeconomic growth and stability are two of the major benefits of financial development, though there are differences in the literature on the channels through which this growth and stability can be achieved. In recent years, a number of emerging economies experienced phenomenal growth. At a micro level, one needs to understand why and how financial deepening could bring changes in economic agents’ behavior leading to an impact on the saving- investment relationship. At the macro level, financial development, integration and globalization could be possible channels to growth. The purpose of this paper is two-fold. First, we provide a comprehensive discussion of the theoretical and empirical literature on the role of important micro- and macro-policy variables in achieving macroeconomic stability with reference to Southeast Asia. Second, we present new empirical evidence using data from a selected sample of countries from the Asia Pacific region on the links between financial integration, trade integration and growth.
KEYWORDS: Macroeconomic stability, financial development, economic integration, financial inclusiveness, fixed-effect, Granger causality.
JEL: C33, F15, F43, F63, E61, F02.

There has been considerable discussion on the drivers of economic growth in East Asia. While most studies recognize that capital accumulation and macroeconomic management were critical in hastening growth, few have examined systematically and comparatively how policy frameworks – spearheaded through selective interventions – stimulated technical progress and the different performance outcomes achieved by these countries. This article attempts to address the gap by systematically analyzing the investment regimes, sources of finance, technological upgrading and policy frameworks of Indonesia, Malaysia, the Philippines, South Korea and Thailand with a view to explaining their economic growth performance.
KEYWORDS: Finance, innovations, industrial policy, technological upgrading, East Asia.
JEL: O16, O40.

This paper focuses on the case of Bangladesh as an example of a country that is at risk of falling into the ‘middle income trap’, in other words the risk that a country that has attained middle income levels will then be unable to join the club of developed countries. This paper uses the theory of Unequal Exchange from the Dependency School to understand the middle income trap in Bangladesh and further argues that the ideas of productivity, competitiveness and technological change derived from orthodox economic thinking are not useful in understanding growth prospects and policy responses in contemporary middle income countries. Alternately, the paper explains the role of structural change as a means of sustaining growth in middle income countries.
KEYWORDS: Bangladesh, middle income trap, unequal exchange, structural change.
JEL: O14, O40.

This study identifies the extent to which various socioeconomic groups are vulnerable to aggregate business cycle fluctuations. Socioeconomic groups are classified by gender, location, employment status, education, income and age cohort. The asymmetric behavior of aggregate economic growth indicates that some groups gain less during recovery and boom phases and are thus most vulnerable to recessions. A vulnerability index in calculated for different socioeconomic groups and the empirical results show that employers with a graduate degree in Balochistan are the most vulnerable group and that female workers are more vulnerable than male workers. Additionally, the study employs panel data on inflation and employment to investigate the implications of macroeconomic fluctuations on vulnerable groups. The results indicate that food inflation has a strong negative impact on real earnings, while nonfood inflation increases real earnings. The panel data and vulnerability index findings are consistent with each other. The study also presents policy implications for existing public social safety net programs and prospective private social innovation programs targeting vulnerable households.
KEYWORDS: Business cycle fluctuations, socioeconomic groups, vulnerability, GMM, Pakistan, real earnings.
JEL: E32, E24, E31, J16, J11.

Pakistan’s agricultural sector has experienced restructuring over the last decade, from changes in land markets to the move toward nonagricultural labor markets. However, agriculture remains one of the most important sources of livelihood, accounting for 45 percent of the country’s workforce. It is also a key policymaking area, but the role of small farmers in poverty reduction is still being examined. The future of small farms cannot be viewed in isolation, that is, without taking into account their synergies with nonfarm rural activities. We measure the impact of diversifying sources of livelihood on household income and consumption among small farms in rural Pakistan. Using a balanced panel of 2,058 households from the Pakistan Panel Household Survey (2001–10), we find that both consumption and income are (i) significantly higher for households that have diversified their sources of income and (ii) diversified households also plant greater varieties of crops. These results suggest that nonagricultural activities tend to complement agricultural activities with a view to improving welfare in a rural economy.
KEYWORDS: Agriculture, income, diversification, Pakistan.
JEL: O1, Q1, E2.

Almost half the world’s adult population lacks access to a formal bank account and other financial services. Pakistan is no exception and it is also among those countries at the lower end of the spectrum of financial inclusion. However, steps are being taken by government regulators and the private sector to improve access to financial services such as credit, savings, remittances and insurance. The introduction of mobile banking is a notable step in this context. Mobile banking, which comprises mobile wallets and over-the-counter transactions, is rapidly growing around the world and has the potential to reduce barriers to financial inclusion and thus transform economies. The benefits of this platform are even more pronounced for economies with a weak financial architecture and where formal banking entails considerable costs in terms of time and distance. This paper traces the history of mobile banking in Pakistan, studies various models of mobile banking and assesses its current state using the available data to understand how this segment has evolved and transformed conventional banking structures in the country. It also touches on the ecosystem that needs to be built in Pakistan to utilize the full potential of mobile technology.
KEYWORDS: Mobile banking, financial inclusion, branchless banking, Pakistan.
JEL: O16, G21, G23, G28.