Impact of government budget announcement on exchange rate of Pakistan: An eventy study

This study examines the impact of budget announcements on the exchange rate dynamics of the Pakistani rupee (PKR) in relation to the US dollar (USD). In economies like Pakistan, where markets are highly sensitive to political and economic variations, a budget announcement can be a significant macroeconomic event for investors. The budget announcement essentially serves as a roadmap for future expenditure priorities for the upcoming year. Such information not only influences investors' sentiments by shaping their perceptions of future economic stability but can also cause fluctuations in the country's currency based on overall sentiments. Given the relevance of budget announcements, an event study methodology is employed to analyze the appreciation and depreciation of the Pakistani currency during the sample period of 2011–2018. The results reveal that the Pakistani rupee exhibits smooth positive and negative fluctuations around event window periods without major swings. Some short-term positive and negative changes occur around the time of the budget announcement; however, these are of modest scale. Therefore, overall, no significant impact of budget announcements on currency fluctuations has been observed in the short run. This suggests that budget announcements in the short term do not exert pressure that could cause major fluctuations in currency movements. Nonetheless, budgeting is a long-term strategy that may influence the currency in the long run, warranting attention from investors and policymakers.