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Foreign Currency Deposits and International Liquidity Shortages in Pakistan
Author:
Mr. Abbas Mirakhor
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Mr. Iqbal Mehdi Zaidi
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Series:
IMF Working Papers
Volume/Issue:
Volume 2004: Issue 167
Language:
English
Publication Date:
01 Sep 2004
DOI:
https://doi.org/10.5089/9781451858211.001
ISBN:
9781451858211
ISSN:
1018-5941
Pages:
39
Keywords:
WP; foreign currency; capital account; balance of payments; private sector; risk premium; Capital Account Liberalization; Financial Development; Dollarization; FCD scheme; credit rationing; state bank; current account; FCD deposit; Bank deposits; International reserves; International liquidity; Commercial banks
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund