Abstract

This study is conducted to forecast the components of financial development of Pakistan for the period of 2016 to 2025. These components include M2, DCP, DCPB, and MC. Originally, 36 years' time series data taken from 1980 to 2015. The present study is very much different in that it uses a newly developed technique that is Fan chart. It is used to forecast with given level of uncertainty. Risk information of upside and downside is another feature of fan chart approach. The results of M2 indicate that, downside risk at the start of forecasting in the year of 2016 initially, but after that it will start upside risk in the reaming period of 2017 to highest value in 2025. This shows that, chances of increase in value of M2 in the upcoming forecasted period. On the other side forecasted value of DCP will have an upside risk during the all period. Whereas, value of DCPB indicates a downside risk in the all forecasted period of 2016 to 2025. At the same time, value of MC has a downside risk in the all-time period. On the basis of these findings, it is recommended to policy makers to keep a diligent eye on risk uncertainty. Downside risk is an alarming situation in the coming years or the uncertainty around to the extent of that change. Upside risk should also be considered by the policy maker to make better decisions.