Open AccessThe Capital Account and Pakistani Rupee Convertibility: Macroeconomic Policy Challenges
Author(s) -
Irfan ul Haque
Publication year - 2011
Publication title -
the lahore journal of economics
Language(s) - English
Resource type - Journals
eISSN - 1811-5446
pISSN - 1811-5438
DOI - 10.35536/lje.2011.v16.isp.a5
Subject(s) - rupee , convertibility , economics , capital outflow , capital account , capital (architecture) , devaluation , currency , foreign direct investment , international economics , monetary economics , balance of payments , financial capital , capital formation , exchange rate , market economy , macroeconomics , archaeology , history , human capital
Pakistan embarked on the liberalization of its capital account more thantwo decades ago. Today, it is an economy with a capital account that is, by andlarge, free of restrictions, and a convertible currency. However, its actualintegration into the global economy in comparison to other emerging marketeconomies has remained rather limited. The opening of a capital account appearedto have improved the country’s access to private foreign capital, but because ofdomestic security and economic and political concerns, the inflow of privatecapital has fallen in recent years. Although capital outflows were not a majorcause for the decline in foreign exchange reserves during Pakistan’s economiccrisis of 2008, the open capital account and rupee convertibility have made itmore vulnerable to outside shocks. This article identifies three areas wherepolicymakers in Pakistan face serious challenges, i.e., macroeconomicmanagement; controlling tax evasion, which the Pakistani rupee’s convertibilityhas made easier; and minimizing the real cost of portfolio investment to thecountry. The article offers ideas on how these challenges could be met.