Abstract
Abstract—External debts affect the economy in both ways. Where efficient use of external debts can bring economic prosperity to a nation, their inefficient use can cause severe damages as well; one of those damages is their impact on exchange rate. The exchange rate of Pakistani Rupee (PKR) with the United States Dollar (USD) has escalated from 4.60 to 108 during the past four decades. This study is primarily focused on: finding the impact of external debts and world oil prices on PKR’s exchange rate; comparing the findings with Nigeria and urging the necessary policies by the Govt. of Pakistan. Least Square Regression model with lag variables and Granger Causality Test are used to analyze the data of 1965 to 2009. The results portray that external debts have significant influence over PKR’s exchange rate, while no such evidence was found for the world oil prices. These outcomes vary from the previous studies and their results obtained for Nigeria.
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