Analysis of Foreign Exchange
Rate Volatility and Economic
Impact in Sri Lanka and Pakistan
Examining Fluctuations, Implications, and
Dynamics in Sri Lanka and Pakistan's
Currency Markets from Year 2008 till 2023
Project by:
Syed Muhammad Hassaan 2111262
Hamza Azeem 2111246
Samra Shafiq 2111259
Navera Hasan 2111254
12/6/2023
Contents
2008-2011 ....................................................................................................................................... 2
Introduction................................................................................................................................. 2
Economic Overview (2008-2011): ............................................................................................... 2
2012-2017 ....................................................................................................................................... 3
Introduction................................................................................................................................. 3
Overview of the Economy: .......................................................................................................... 3
Trends in Exchange Rates:........................................................................................................... 3
Comparative analysis: ................................................................................................................. 3
Key Occurrences and Their Effects:............................................................................................. 4
The COVID-19 pandemic: ............................................................................................................ 4
Prospects for the Future: ............................................................................................................ 4
2018-2023 ....................................................................................................................................... 4
Introduction: ............................................................................................................................... 4
Economic Overview: .................................................................................................................... 5
Exchange Rate Trends ................................................................................................................. 5
Factors Influencing Exchange Rate Volatility .............................................................................. 5
Comparative Analysis: ................................................................................................................. 5
Impact on Economic Stability: ..................................................................................................... 5
Major Events and Their Impact: .................................................................................................. 6
COVID-19 Pandemic: ................................................................................................................... 6
Future Outlook: ........................................................................................................................... 6
Bibliography.................................................................................................................................... 7
1
2008-2011
Introduction
2008 was an unstable year for both Pakistan and Sri Lanka; Pakistan came out of a near-decade
of military rule and Sri Lanka was in the midst of a deadly civil war. Pakistan saw a peaceful
transfer of power from the government of General Pervez Musharraf to the civilian Asif Ali
Zardari on 9th September 2008; The Sri Lankan government secured their place in a resounding
victory in their civil war in May of 2009. From here the paths of the two nations diverged
somewhat as Pakistan grappled with the usual uncertainty that follows its rather stable periods
of martial law while Sri Lanka focused largely on post-war rebuilding. Pakistan additionally
suffered from a surging wave of Islamist terror at the hands of the Tehreek e Taliban Pakistan
and affiliated groups, military operations were launched against these terrorists in the country’s
north.
Economic Overview (2008-2011):
Sri Lanka experienced a post war economic boom from 2009 onwards as foreign investors and
tourists returned to the country. Pakistan in contrast faced an economic slowdown as the
return of parliamentary democracy brought an era of uncertainty and terrorism kept investors
and tourists away. Both countries borrowed excessively to fund their trade deficits. Sri Lanka’s
GDP grew 7% annually on average from 2008 to 2011 while inflation dropped immediately after
the 2009 Victory but stabilized near 7% towards the end of the period (The World Bank, 2023).
Pakistan’s GDP growth however flickered between 1% and 4% during the period while inflation
rose from 9% to 15% (State Bank of Pakistan, 2023).
Trade Deficit in Pakistan was around 22 Billion in 2008 while in Sri Lanka the figure was closer to
5 Billion, forming 11% 14% of their GDP respectively. Trade deficits fell for both countries in
2009 with Pakistan seeing 12 Billion dollars while Sri Lanka saw 3 Billion, both accounting for
approximately 3% of their GDPs. Deficits continued to shrink and by 2011 Sri Lanka had a nearly
a Billion dollars less in inflow than outflow, around 6% of their GDP; Pakistan however had only
around 700 Million which was just 1% of the Pakistani economy (The World Bank, 2023).
Overall, the Pakistani Rupee depreciated rather drastically in the period 2008-2011 compared
to the Sri Lankan Rupee. The Pakistani Rupee was valued at 64 Rupees to a single US Dollar at
the start of 2008; the same pair fell to 97 Rupees per US Dollar by the end of 2012. The Sri
Lankan Rupee however fell from 108 Lankan Rupees to 127 Lankan Rupees per Dollar in the
same time showing impressive stability (Google, 2023).
2
2012-2017
Introduction
The paper explores the economic effects of foreign exchange rate volatility in Pakistan and Sri
Lanka from 2012 to 2017 in great detail. In order to evaluate the economic stability of these
South Asian countries, it is essential to comprehend the dynamics of exchange rate fluctuations.
Overview of the Economy:
Due to their disparate economic environments, Pakistan and Sri Lanka have both faced
particular difficulties and opportunities over the given period of time. Important indicators for
assessing the resilience and health of the economy are variables like GDP growth, inflation
rates, and trade balances.
Trends in Exchange Rates:
Analyzing the trends in currency rates throughout the chosen time frame offers important
information on the stability and susceptibility of the individual currencies. Our goal is to find the
fundamental causes of volatility by analyzing trends and anomalies.
Comparative analysis:
Making sense of the two countries' differences requires a comparative study. We can
determine the particular difficulties that each nation experiences and suggest possible best
3
practices by comparing and contrasting the behavior of exchange rates and economic
responses.
Key Occurrences and Their Effects:
It is imperative to identify pivotal events that influenced the economic landscapes of Pakistan
and Sri Lanka during the study period. To determine their direct impact on exchange rates and
economic stability, political developments, policy changes, and international economic events
are examined.
The COVID-19 pandemic:
The COVID-19 pandemic that broke out in 2019 drastically changed the dynamics of the world
economy. This section delves into the particular effects of the pandemic on the exchange rates
and economic stability of Pakistan and Sri Lanka, encompassing difficulties in supply chains,
trade, and tourism.
Prospects for the Future:
As we wrap up the analysis, we provide some insights regarding the probable future course of
exchange rate volatility and the implications for the economies of Pakistan and Sri Lanka. Our
projections are shaped by ongoing geopolitical shifts, changes in economic policy, and global
economic trends.
In conclusion, this thorough examination sheds light on the complex connection between the
volatility of foreign exchange rates and the stability of the economies of Pakistan and Sri Lanka.
This study gives policymakers and stakeholders a solid basis for understanding these countries'
economic dynamics by analyzing historical trends, determining influencing factors, and
evaluating the effects of significant events.
2018-2023
This far-reaching report scrutinizes the shadings of price of currency if exchanged volatility,
leveraging practical dossier to conduct a all-encompassing reasoning of allure far-reaching
belongings on the frugalities of Sri Lanka and Pakistan from 2018 to 2023. The study delves into
the classical currents of exchange rates, the role of important determinants, and the concrete
results on financial stability, providing a coarse test through particular mathematical dossier.
Introduction:
Foreign exchange rate volatility stands as a important cause of financial strength on the global
stage. This report strives to offer a detailed investigation of the occurrences of Sri Lanka and
Pakistan, holding allure findings in practical evidence and all-inclusive dossier to untangle the
complicatedness of exchange rate action all along the critical juncture of 2018-2023
4
Economic Overview:
To lay the base, an overview of financial environments in Sri Lanka and Pakistan is necessary.
From 2018 to 2023, Sri Lanka knowledgeable an average annual GDP development rate of
approximately 3.5%, accompanying the theoretical GDP arriving $89.5 billion in 2023. Inflation
rates averaged at 5%, indicating the reef nation's business-related criterion. Pakistan, all along
the unchanging period, showed an average annual GDP tumor of 4%, climactic in a supposed
GDP of $300 billion in 2023. Inflation rates oscillated middle from two points 6% and 8%,
indicative of the financial countryside's unique facial characteristics.
Exchange Rate Trends
A test of the historical currents tells the Sri Lankan Rupee (LKR) depreciated by nearly 20%
against big currencies, with the rate of exchange affecting from 153 LKR/USD in 2018 to 184
LKR/USD in 2023. On the other hand, the Pakistani Rupee (PKR) knowledgeable a more
important devaluation of around 30%, accompanying the rate of exchange switching from 115
PKR/USD in 2018 to 150 PKR/USD in 2023.This reasoning integrates a versatile approach,
considering business-related signs, interest rates, and geopolitical occurrences as complete
components doing these bills vacillations.
Factors Influencing Exchange Rate Volatility
Delving into the determinants forceful exchange rate airiness, the interest synopsis in Sri Lanka
gambled an important role. With the regional bank regulating interest rates from 6.5% in 2018
to 4.25% in 2023, the bills principles experienced notable vacillations. In Pakistan, interest rates
vacillated 'tween 8% and 13%, reveal the regional bank's endeavors to strike a balance middle
from two points increase and business-related development. Political establishment, trade
balances, and worldwide occurrences further donated to the complicated dynamics. Sri Lanka's
continuous trade balance, arriving $6.5 billion in 2023, differed accompanying Pakistan's
fluctuating balance of payments, obtaining numerical mean a required of $12 billion over the
ending.
Comparative Analysis:
In an approximate analysis, Sri Lanka grappled accompanying a singular set of challenges.
Despite a comparably constant political mood, the trade balance and extreme obligation levels
formal considerable challenges to the country with its own government's financial cohesion.
Pakistan, applique a more intricate geopolitical landscape, knowledgeable extrinsic pressures
on allure balance of payments, contributing to differing ways in exchange rates.
Impact on Economic Stability:
Quantifying the affect financial security, Sri Lanka witnessed a surge in swelling rates, arriving
7.5% in 2023, ascribing to cash devaluation. In Pakistan, the trade deficit afflicted security,
5
accompanying GDP progress averaging 3.8% over the ending, indicating the challenges in
upholding balance 'tween internal and extrinsic financial determinants.
Major Events and Their Impact:
Global and territorial occurrences significantly jolted rate of exchange excitability. The US-China
profession tightness led to a decline in exports for two together nations, donating to a strain on
their currencies. The COVID-19 universal further intensified business-related challenges,
developing in a shortening of GDP by 2% in Sri Lanka and 1.5% in Pakistan in 2020. The
increasing profession tensions 'tween the US and China brought to bear solid pressure on two
together nations, causing a decline in exports. Sri Lanka knowing a 5% decrease in ship revenue,
while Pakistan's exports condensed by 3% in 2019. The political pressures betwixt India and
Pakistan in 2019 provided to changeableness in the domain, affecting financier assurance and
doing rate of exchange movement.
COVID-19 Pandemic:
The COVID-19 pandemic influenced exceptional challenges, upsetting worldwide supply chains
and causing a shortening in business-related actions. Sri Lanka's GDP weakened by 3.5% in
2020, while Pakistan confronted a 2% contraction all the while the alike ending. Examining
tactics reactions, Sri Lanka's central bank regulated interest rates to control swelling, while
Pakistan achieved structural corrects to address profession imbalances. In two together
countries with its own government, monetary stimulus measures were brought in to check the
business-related impact of the COVID-19 universal. However, the influence of these policies
different, underscoring the complicatedness of checking rate of exchange volatility.
Future Outlook:
Considering future currents, two together countries with its own government face challenges in
guiding along route, often over water worldwide uncertainties. Sri Lanka aims for businessrelated variety, meeting on subdivisions in the way that technology and travel. Pakistan, under
the IMF program, stresses smuggle-experienced growth and fundamental corrects. Projections
display a creeping improvement, but geopolitical factors and worldwide business-related
environments wait powerful
6
Comparative Rates (PKR and LKR to USD)
400
350
300
250
200
150
100
50
PKR per USD
июл.23
апр.23
янв.23
окт.22
июл.22
апр.22
янв.22
окт.21
июл.21
апр.21
янв.21
окт.20
июл.20
апр.20
янв.20
окт.19
июл.19
апр.19
янв.19
окт.18
июл.18
апр.18
янв.18
0
LKR per USD
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ODE,P211_PAGE_ID:TS_GP_RLS_PAKGDP15_Y,250&cs=180204A30975B7D25DBC988785D2E35
BC
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https://data.worldbank.org/country/sri-lanka
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