IMPACT OF U.S MONETARY TIGHTENING ON PAKISTAN’S FINANCIAL SECTOR: RISKS AND OPPORTUNITIES

Abstract

This study explores the effects of U.S. monetary tightening on Pakistan’s financial sector through the lens of international relations, focusing on the political and economic dynamics between the two nations. As the U.S. raises interest rates, global financial markets experience shifts that impact emerging economies, including Pakistan. The research adopts an international relations framework to assess how U.S. monetary policy influences Pakistan’s economic  sovereignty, geopolitical alignment, and financial stability. Specifically, the study investigates how these monetary shifts affect Pakistan's exchange rates, inflation, capital flows, and the performance of financial institutions, while also considering broader international power dynamics, trade relations, and the global financial order. The study examines both the risks—such as increased borrowing costs, diminished foreign investment, and currency depreciation—and opportunities, including potential benefits for Pakistan’s exports, remittance inflows, and strategic international partnerships. The findings aim to offer insights into the ways U.S. monetary policy impacts Pakistan's foreign policy decisions and its position within the global economic system, providing policymakers and international relations experts with critical information on navigating these economic shifts.