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Abstract:

This policy paper studies the current macroeconomic conditions in Pakistan and suggests a policy responses to imbalances in the external, fiscal and monetary sectors in Pakistan. Pakistan underwent higher than tend growth in past 2-3 years. However, this growth was accompanies by rising current and fiscal account deficits. Moreover, during the same period the central bank followed an expansionary monetary policy and frequently intervened in the foreign exchange market. This policy paper will discuss the benefits and costs of this policy, and will discuss various policy options all the policy makers have to remove the imbalances in the macro-economy. One key finding of this paper is that currently, the policy makers are making policies in isolation of each other. Going forward, a coordinated policy response from all policy makers is required for an effective macroeconomic policy.