Foreign Currency Deposits and International Liquidity Shortages in Pakistan

Abbas Mirakhor () and Iqbal Zaidi
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Iqbal Zaidi: IMF's Finance Department.

The Pakistan Development Review, 2006, vol. 45, issue 1, 49-85

Abstract: This paper studies the implications of foreign currency deposits (FCDs) for international liquidity shortages in Pakistan. The analysis focuses on how the large volume of FCDs and the specific institutional characteristics of those deposits have made the Pakistan economy highly vulnerable to exogenous shocks. The analysis shows that FCDs created another channel for government borrowing, and fiscal sustainability in a “closed” system may be very different from sustainability in a more “open” system. There is a need to think of these issues in terms of total balance sheet vulnerability, and we recommend measures that would make domestic-currency-denominated assets attractive to investors.

Keywords: Capital Account Liberalisation; Financial Development; Dollarisation (search for similar items in EconPapers)
JEL-codes: E25 F41 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:pid:journl:v:45:y:2006:i:1:p:49-85

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