Financial Crisis of 2008 and its impact on Pakistan
Following the financial crisis that broke in the US and other Western economies in late 2008, there is now serious concern about its impact on the developing countries including Pakistan. No doubt about that there are particular countries that will be adversely affected, there will also be countries that may be less affected, may avoid recession, and may recover sooner than expected. Although current Pakistan’s Economics downturn has been caused due to its internal economic problems instead of global financial crisis but its economy may suffer as the global financial crisis prolong. This paper discusses the global financial crisis, reasons of Pakistan’s economic meltdown and foreseeable impact of this crisis on Pakistan’s economy. Finally, some options available to Pakistan for minimizing the impact of the crisis have been discussed. The crisis accentuates the urgent need for accelerating financial development, both through domestic financial deepening, domestic resource mobilization. 1. Introduction
Indeed, the crisis that by October 2008 had erased around US$25 trillion from the value of stock markets seems largely to have been unexpected. Partly this was because it came on the heels of a seven-year period of high growth and originated in the USA; many had expected a global slowdown to start in the emerging markets Both the initial destruction of financial wealth as well as the psychological shock of seeing many elite Wall Street firms on their knees, prompted numerous commentators to initially raise the spectre of the great depression. Although not the great depression, it is indeed true that the world is staggering from financial to economic crisis as the US, EU, Japan and other high-income economies entered the recession at the end of 2008. Having decimated Wall Street and then crippled Main Street, the financial crisis seems like a hurricane about to sweep across the developing world. Pakistan has undergone economic crisis during year 2008. Macroeconomics indicators are not presenting a pleasant picture of the economy. Inflation has reached as high as 25.0%, foreign investments have decreased. Foreign exchange reserves decreased to 4.5billions, equivalent to about six weeks of imports meanwhile value of rupee falls.
Pakistan is facing economic crisis during that time when world is also facing global crisis. Apparently it seems that Pakistan’s economic crisis is due to the global financial crisis because the timings of the two crises are same. But it is not any logic to draw conclusion. What are the reasons behind current Pakistan economic crisis? Whether the global financial crisis has its impact or not? How the possible impact of global crisis can be minimized? These are the questions which motivated to make an investigation. This paper is an attempt to answer the questions This paper investigates the consequences of the 2008 financial crisis on the Pakistan. It is structured as follows. Section 2 provides a brief outline of the causes of the crisis. This is the necessary background for understanding the likely impact and the required responses. The remainder of the paper examines the likely magnitude and duration of the crisis. Section3 discusses those major factors which lead Pakistan towards current economic meltdown. Section 4 identifies the channels through which it will exert its impact on Pakistan. In this regard the main conclusion is more optimistic of the prospects faced by the developing world including Pakistan, although at the time of writing, many uncertainties remain. Section 5 discusses the options for Pakistan to minimize the impact of the crisis, arguing that the crisis makes it imperative to accelerate financial development in developing countries including Pakistan through both domestic financial deepening and reform of the international financial system. 2. Global Financial Crisis - A brief overview
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