Impact of global financial crisis on the economy of Pakistan

Impact of global financial crisis on the Pakistan


Global Financial Crisis has change the whole scenario of the world. This millennium has brought many issues with itself. The hottest issue in the beginning was war on terrorism; now it is Global Financial Crisis. This crisis has created an alarming situation for all the countries of the world including developed and underdeveloped countries. But its major victims are developed and developing countries. The world has never witnessed a crisis like this before. The financing from different sectors has been withdrawn leading those sectors helpless and hand cuffed e.g., garments industry, food factories, banking sector and stock exchange etc. and more withdraws from other sectors are expected. Investors are looking for safest sectors to invest their capital, so major investment is taking place in real estate. Major portion of this investment is going to UAE (especially Dubai).

This financial crisis has lead to downsizing in organizations, the unemployment rate in USA is highest in 26 years, and similar is the case with India, China, UK, Japan, Pakistan and other counties. . This has created despair among people which may affect world peace. More over, many analysts says that government of many third world countries will cut their expenditures by reducing health and education budget, this will solve their short term problems, but they will suffer in the long run. W.H.O has made an effort to create awareness among these countries to avoid cutting health and education expenditures.

The global financial crisis has give opportunity to many developed countries and international agencies like I.M.F and World Bank to exploit the underdeveloped countries. I.M.F has granted loans of billions of dollars to many countries (mostly underdeveloped) like Hungary, Pakistan. With strict restrictions and economic plans which has forced them to go slow. The high rate of inflation is another virtue of this crisis.

The economies of export oriented countries like China and India has suffered most. World demand has declined suddenly, reducing their export and Gross National Product (GNP) and Gross Domestic Product (GDP). The export oriented industries has adopted the cost cutting strategy leading to downsizing. Further, their foreign exchange reserves have also declined, causing defaults in their import payments. This situation has forced these countries to get loans from IMF and World Bank. IMF, World Bank and European Union have granted aid to following countries: Belarus ($2 billion), Hungary ($25.1 billion), Iceland ($2billion), Pakistan ($7.6 billion), Seychelles ($26 million), Turkey ($10 billion) and Ukraine ($16.5 billion). In short As of August 28, the fund had $201 billion in loan able funds. It had $18.3 billion loaned out under a variety of programs to 65 countries.

The world’s self proclaimed super powers are trying to get out of this crisis as soon as possible according to them; it’s difficult but not possible. This crisis has encouraged different countries to cooperate and coordinate with one another. The former president of U.S.A. George W Bush said in a press conference,” We have tendency of overcoming this crisis; it is difficult but not impossible.”

IMPACT ON PAKISTAN

Pakistan is an underdeveloped country. It is facing political and social crisis. The global financial crisis has affected Pakistan adversely.

Pakistan’s major portion of export goes to U.S.A. so because of decrease in global demand, Pakistan’s exports has decreased resulting in low GDP. Because of fewer exports, Pakistan’s foreign exchange reserve has decreased, moreover because of political instability, Pakistan faced huge out flight of capital. All the trading in sock exchange has jammed and stock prices have fallen to very low prices and people have lost millions of rupees in stock exchange. The government has created a reserve to support stock exchange but people have lost their trust therefore, no major trading is taking place in stock market. There were rumors that Karachi Stock Exchange will be liquidated, but these were only rumors.

Because of low production different MNCs are leaving Pakistan creating unemployment in the country, many production sectors have been closed because they were not meeting their cost. Many organizations are adopting downsizing strategy to control cost of productions.

Pakistan also suffered from liquidity crunch, which affected micro financing (Tameer Micro Finance Bank has been acquired by Telenor Pakistan).

Because of out flight of capital, foreign exchange reserves of Pakistan declined by $99.7 million in November and reached to a point where Pakistan was not able to pay its liabilities. This also devalued rupee against other currencies like Dollar, Euro and Ponds etc. The dollars has reached to Rs. 78.7, Pond to Rs. 121.15 and Euro to Rs.101.51.

Out flight of billions of dollars from Pakistan left Pakistan government with very low liquidity and once again deficit budget. National treasure of Pakistan, which previous government claimed to be overflowing is now almost empty and government is unable to pay its liabilities. To increase the government revenue, sales tax has been increased from 15% to 20%, and excise duty has been increased to 300% on price of product, causing increase in poverty. Government has obtained heavy loans to maintain its liquidity. Firstly it received 100 billions Rs from Asian Development Bank (ADBP) and now $7.4 billions from International Monetary Fund (IMF).

Pakistan suffered from deposit shrinking, which lead to increase in interest rate by commercial banks. The increased interest rate increased cost of production as a result inflation increased. Increasing inflation increased poverty. Recent surveys show that 49% population of Pakistan is living below poverty line.

The government of Pakistan should take this crisis seriously and should take effective measures to overcome this and take measures to avoid such situation if future. The business sector should also take this crisis seriously and should take effective measures otherwise, it will be like carnage left over after a storm.






REFERENCES


Business recorder www.brecorder.com
New York Times www.nytimes.com
www.google.com
World health organization www.who.int

Articles on “The Financial Times Limited 2008” entitled as

.IMF has few days left to help Pakistan, says German minister
By Farhan Bokhari in Islamabad and Chris Bryant in Berlin
Published: October 29 2008 02:00 last updated: October 29 2008 02:00
.Pakistan seeks crackdown on tax evasion and Pakistan asks IMF for $7.6bn
By Farhan Bokhari in Karachi
Published: November 19 2008 17:38 last updated: November 19 2008 17:38
.Pakistan closer to IMF loan
By Farhan Bokhari in Lahore
Published: November 12 2008 23:53 Last updated: November 12 2008 23:53

Impact of the global financial and economic crisis on health
Statement by WHO Director-General Dr Margaret Chan
U.S. financial crisis may impact foreign aid
by Mizzima News
Friday, 03 October 2008 17:03
Save PAKISTAN, save the world! By Shahid Javed Burki Blog at WordPress.com