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1. Abstract
The aim of the study is to examine the relationship between foreign exchange and Pakistan
economy. The model of the research shows that foreign exchange (Independent Variable) is
affected on Pakistan economy (Dependent Variable) and its mediating variables are imports
of Pakistan, exports of Pakistan and foreign aids for Pakistan. For our research, we collected
secondary data.We collected secondary data through internet resources. We collected
annual Foreign Exchange and annual GDP figures of last 15 years (1995 - 2009) from State
Bank of Pakistan’s web sites.
2. Introduction
This research studies the relationship between foreign exchange and the economy of
Pakistan. The result of this study should help the economist to make effective policies and
get better output. This research consists of Introduction, Review of Literature, Methodology,
Analysis and conclusion. It includes the background of the problem, purpose of the study, a
statement of problem, the research problem, the research question, limitation and
delimitation and ethical consideration.
Impacts of Foreign Exchange (imports of Pakistan, exports of Pakistan and foreign aids for
Pakistan) in the economy of Pakistan.
The economy of Pakistan is the 27th largest economy in the world in terms of purchasing
power, and the 45th largest in absolute dollar terms. Pakistan has a semi-industrialized
economy, which mainly encompasses textiles, chemicals, food processing, agriculture and
other industries.Pakistan's overall economic output (GDP) has grown every year since a
1951 recession. Despite this record of sustained growth, Pakistan's economy had, until a few
years ago, been characterized as unstable and highly vulnerable to external and internal
shocks. However, the economy proved to be unexpectedly resilient in the face of multiple
adverse events concentrated into a four-year (1998-2002) period
Due to inflation and economic crisis worldwide, Pakistan's economy reached a state of Balance
of Payment crisis. "The International Monetary Fund bailed out Pakistan in November 2009 to
avert a balance of payments crisis and in July last year increased the loan to $11.3 billion from an
initial $7.6 billion.
The Pakistani rupee depreciated against the US dollar until the turn of the century, when
Pakistan's large current-account surplus pushed the value of the rupee up versus the
dollar. Pakistan's central bank then stabilized by lowering interest rates and buying
dollars, in order to preserve the country's export competitiveness.
By October 2007, at the end of Prime Minister Shaukat Aziz’s tenure, Pakistan raised
back its Foreign Reserves to $16.4 billion. Pakistan's trade deficit was at $13 billion,
exports grew to $18 billion, revenue generation increased to become $13 billion and the
country attracted foreign investment of $8.4 billion . On October 11, 2009 State Bank of
Pakistan reported that country's foreign exchange reserves had gone down by $571.9
Million to $7749.7 Million. The foreign exchange reserves had declined more by $10
billion to an alarming rate of $6.59 billion.
The purpose of this research problem will be to test the theory of impact of foreign
exchange on the economy of Pakistan the theory associate with model of the research
shows that foreign exchange (Independent Variable) is affected on Pakistan economy
(Dependent Variable) and it’s mediating variables imports of Pakistan, exports of
Pakistan and foreign aids for Pakistan. Secondary data will used to analyze that theory.
The study is important in terms of assessing and testing the relationship between
foreign exchange and Pakistan economy.
To decreased our Imports and then our economy will improved
To increased our exports and then our economy will improved
It will examine the impacts of aid on Pakistan economy
This study will improve the foreign exchange system in Pakistan
2.6 Research Question
(Main question)
The factors affect the Foreign exchange on Pakistan Economy.
(Sub questions)
What factors affect the Foreign Exchange?
Does it reduce the Imports of Pakistan?
Does it help to increase the exports of Pakistan?
Does it help the Pakistan Economy to grow?
Hypothesis 2:
Hypothesis 3:
Hypothesis 4:
3.Literature Review
Imports of Pakistan
Foreign exchange is the most important and the hot issue of Pakistan which help the
Pakistan to build their economy but the increment in imports is badly affects it because the
imports of Pakistan are continuously increased. Pakistan's imports stood at $30.54 billion in
the financial year 2006-2007, up by 8.22 percent from last year's imports of $28.58 billion.
Pakistan's single largest import category is petroleum and petroleum products. Other
imports include: industrial machinery, construction machinery, trucks, automobiles,
computers, computer parts, medicines, pharmaceutical products, food items, civilian
aircraft, defense equipment, iron, steel, toys, electronics, and other consumer items. Sales
tax is levied at 15 percent both on imports and domestically produced products. The income
withholding tax is levied at 6 percent on imports and at 3.5 percent on the sales of domestic
taxpayers.
(Wikipedia.org)
Exports of Pakistan
An export of agricultural products is backbone of Pakistan economy but from last few years
the exports of Pakistan was relatively decrease from past years records. But in Pakistan's
exports increased more than 100% from $7.5 billion in 1999 to stand at $18 billion in the
financial year 2007-2008.
Pakistan exports rice, furniture, cottonfiber, cement, tiles, marble, textiles, clothing, leather
goods, sports goods (renowned for footballs/soccer balls), surgical instruments, electrical
appliances, software, carpets, and rugs, ice cream, livestock meat, chicken, powdered milk,
wheat, seafood (especially shrimp/prawns), vegetables, processed food items, Pakistani
assembled Suzukis (to Afghanistan and other countries), defense equipment (submarines,
tanks, radars), salt, marble, onyx, engineering goods, and many other items. Pakistan now is
being very well recognized for producing and exporting cements in Asia and Mid-East. In
August 2007, Pakistan had started exporting cement to India in order to fill in the shortage
there caused by the building boom. (Wikipedia.org)
Aid is also playing important role in Pakistan because Pakistan receives economic aid
from several sources as loans and grants. The International Monetary Fund (IMF), World
Bank (WB), Asian Development Bank (ADB), etc provides long term loans to Pakistan.
Pakistan also receives bilateral aid from developed and oil-rich countries.
The Asian Development Bank will provide close to $6 billion development assistance to
Pakistan during 2006-9. The World Bank unveiled a lending program of up to $6.5 billion for
Pakistan under a new four-year, 2006-2009, aid strategy showing a significant increase in
funding aimed largely at beefing up the country's infrastructure. Japan will provide $500
million annual economic aid to Pakistan. In November 2008, The International Monetary
Fund(IMF) has approved a loan of 7.6 Billion to Pakistan, to help Stabilize and rebuild the
country's economy. More recently the Govt. of Pakistan received an economic aid of US
$5bn dollars out of which the US pledge of $1bn was described as a down-payment on the
previously announced $1.5bn already promised to Pakistan for each of the next five years.
The European Union promised $640m over four years, while reports said Saudi Arabia had
pledged $700m over two years. Overall Friends of Pakistan had pledged $1.6 billion in aid,
which would help Pakistan, move forward on its way to self-reliance.
(Wikipedia.org)
4. Model
Economic Aids
Imports of
Pakistan
Pakistan
Foreign Exchange Economy
Exports of
Pakistan
6. Methodology
The study will use the positivism approach to find out the results with the help of
secondary data.
I will use the software for data analysis that is SPSS (quantitative data).
Because this software effectively shows the result.
Population
There is no population in this study because we use secondary data and we
collect that data from State Bank of Pakistan and from different Chambers of
commerce.
6.1 Data Collection Procedure
We use secondary data in this research we collect that data from State Bank of
Pakistan and also through the library, internet, journals and articles.
Time Schedule
The study will take 6 month. The actions will be competed in following time or
schedule.
Validity and reliability is already checked because we use secondary data in this
research.
The data resources will be clearly informed from the object of the study.
The information which we will be used only for this study and after the certain time
of period and will delete
All resources will be offer for participation
This study is restricted because of the data resources which we use to measuring the
performance of Pakistan economy cannot be enough for indicating the variables that affect
the performance of economy.
References
Bryman,& Bell. (2007). Business Research Method. NY: Oxford University Press.
Economy of Pakistan (2010) Retrieved March, 2010 from http://Wikipedia, the free
encyclopedia/Economy of Pakistan
Graham, J (1996): “Debt and the Marginal Tax Rate”, Journal of Financial Economics,
WP/03/186,