Aside from the broader development debates, what is unusual currently is that Pakistan’s economy is simultaneously faced with twin shocks, global and domestic. The global shocks are represented by international financial market turmoil and the unprecedented increase in global commodity prices, while rising fiscal and external current account imbalances characterize the domestic shocks.
In the backdrop of (relative) slowdown in foreign exchange inflows in FY2008, these shocks have resulted in pressure on the exchange rate and foreign exchange reserves, heavy government borrowings from the central bank, and a rise in domestic inflation.