Pakistan Institute of Development Economics


Key Messages

Messages from Five Currency Crisis of Pakistan

  1. Let the exchange rate be market determined
  2. Accumulate reserves and keep the exchange rate somewhat undervalued.
  3. SBP should not try to use reserves to fix the value of the exchange rate except to deal with very short-term disorderly conditions. The principle should be to never lose significant reserves to fix the exchange rate.
  4. Currency crises or attacks happen if the SBP attempts to use reserves to hold the exchange rate against the market. In the end the market wins and destabilizes the rate. 
  5. There is nothing wrong with some exchange rate variability and a depreciating trend in an orderly market. Depreciation with a low level of foreign reserve invite currency crises.

Key words: Exchange rate, Foreign Exchange Reserve, Currency Crisis

Message from Trade Elasticities and how to promote trade

Export demand is less responsive to change in real exchange rate. Brand loyalty protects the goods in the international market and it is necessary to educate exporters about the branding of their products. Import demand is also inelastic to change in real exchange rate. Our major imports are based on machinery and petroleum products, which serve as necessity input in production. Inelastic import demand reveals that we have made no progress on developing energy saving and remain dependent on imported energy. Therefore, exchange rate policy can do nothing on the structure.

Key words: Real exchange rate, Trade balance, elasticities

Why Do We Have Less Investment Than China and India?

We Learn from China and India

  • Innovation in productivity and management has crucial importance.
  • The creation of the linkages between academia and firms for the development of required skills is compulsory which China has created in their innovation process.
  • The government should start prioritizing technology, science, and innovation as the main pillars for medium and long-term growth as China has done.
  • Open the services sector like real estate, telecommunications, and banking sectors to foreign direct investors.
  • Overprotection results in low productivity and inefficiency of local industries.
  • Equipment investment rather than infrastructure investment matters most for economic growth

Keywords: Public Investment, Public Investment, Foreign Direct Investment, Saving