Saving-Investment or Foreign Exchange Gap: What Hinders Fiscal Stability in Pakistan?

Authors

  • Muhammad Asghar Ghazi University, Dera Ghazi Khan, Pakistan
  • Muhammad Ali Gardezi School of Economics, Bahauddin Zakariya University Multan, Pakistan
  • Sharafat Ali Department of Economics, Government Graduate College Kot Sultan, Layyah, Punjab, Pakistan https://orcid.org/0000-0001-7893-4055

DOI:

https://doi.org/10.56536/ijmres.v12i4.337

Keywords:

Saving-investment gap, foreign exchange gap, macroeconomic stability, fiscal policy

Abstract

Macroeconomic stability is a major objective to be achieved for sustainable economic growth. However, fiscal stability has been prone to instability in dual-gaps in a developing country like Pakistan. This study examines the impact of the saving-investment gap (SI), foreign exchange gap (XM), and the mediating impact of output on fiscal deficit using the time-series data from 1973 to 2018 in Pakistan using Autoregressive Distributed Lag (ARDL). The results show that an increase in the saving-investment gap and output lower the fiscal deficit. However, an increase in the foreign exchange gap increases the fiscal deficit. While considering the interaction effect, SI and output negatively but XM and output interaction positively affect the fiscal deficit. Since SI and output stabilize the fiscal position while the XM destabilizes the latter, the government should strategize to increase savings, investment, exports, and national output and reduce unnecessary imports.

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Published

2022-12-23

How to Cite

Muhammad Asghar, Muhammad Ali Gardezi, & Ali, S. (2022). Saving-Investment or Foreign Exchange Gap: What Hinders Fiscal Stability in Pakistan?. International Journal of Management Research and Emerging Sciences, 12(4). https://doi.org/10.56536/ijmres.v12i4.337