Original Contribution CURRENT ACCOUNTS DEFICITS SUSTAINABILITY: IMPLICATIONS OF INTERTEMPORAL FOREIGN BORROWING CONSTRAINT FOR

Theory of intertemporal budget constraints is applied to current account deficits of Pakistan for 1980:1-2004:2 periods. The aim of this study is to demonstrate whether the foreign debt arising from deficit current accounts policies has sustainability in the current economic policies of Pakistan. By means of the revenues and expenditures of current accounts, it is tested if current account deficits are too large. The results obtained have demonstrated that current account deficits are not sustainable. Key words: current account deficit, solvency condition, intertemporal foreign budget constraint, cointegration