GLOBAL ECONOMIC RECESSION

AND ITS IMPACT ON PAKISTAN

Submitted to:

Dr. Ijaz Majid

Submitted by:

SABOOHI RAFIQUE
M.Sc. (Economics)
Final

DEPARTMENT OF ECONOMICS
UNIVERSITY OF PESHAWAR
Session 2010-2011

GLOBAL ECONOMIC RECESSION

AND ITS IMPACT ON PAKISTAN

Thesis report submitted to the Department of Economics in partial fulfillment of the

requirement for the Degree of Master of Economics

Submitted to:

Dr. IJAZ MAJID

Submitted by:

SABOOHI RAFIQUE
M.Sc. (Economics)
Final

DEPARTMENT OF ECONOMICS
UNIVERSITY OF PESHAWAR
Session: 2010-2011

APPROVAL SHEET

This work is hereby approved and recommended as a partial fulfillment for the award of
the degree of M.Sc.in Economics.

Supervisor:

___________________________
Dr. Ijaz Majid
Department of Economics,
University of Peshawar

External Examiner:

Chairman:

___________________________

___________________________
Dr. Naeem-Ur-Rehman Khattak
Department of Economics,
University of Peshawar

DEPARTMENT OF ECONOMICS
UNIVERSITY OF PESHAWAR
Session: 2010-2011

ACKNOLOWLEDGMENTS
I am very much thankful to Almighty Allah the most merciful and mighty, who gave me
courage to complete my research and helped me to take this initiative.
I will never forget the things which I learned during the course of writing this thesis. I
will never forget the stressful days and sleepless nights I spent during this process.
I express my deepest gratitude and profound regards to my supervisor Dr. Ijaz Majid for
his encouragement, dynamic supervision and guidance. I present my thanks to his efforts.
I also thank all of the lecturers and Professors of the Economics department, especially
Prof. Shafiq Ullah Khan Bangash who really supported, helped and encouraged me in
this research.
In last but the most inspirational, loving and supportive chapter of my life, my fellow
friends, I thank them all, specially Muhammad Mudaser for his help and support.
Finally I extent my special and the most important gratitude and thank to my parents who
make me able to reach me to this level, who supported me financially, care and support
throughout my education career and my life.

SABOOHI RAFIQUE

ABSTRACT
The present study was initiated to know the causes of current economic recession and its
impact on the economy of Pakistan.
The world leading economies experienced a worst financial crisis since the great
depression. Output has shrunk, jobs have been lost, and unemployment has been
mounting, causing untold misery and pushing millions of people below the poverty line.
The crisis emerged in US due to a boom in housing sector. Consequently it led to the
failures of large financial institutions in the United States rapidly evolved into a global
crisis resulting in European bank failures, declines in various stock indexes, and
significant reductions in the market value of equities and commodities worldwide. It has
affected the poor areas of the world. People living under $2 per day have been
mainly affected. Pakistan has bad effects of this crisis. The poor people of the Pakistan
got more poor and unemployed. There are different views about the impact of the crisis
on Pakistan. Some peoples have said that the recession was only in European countries
and some has said that it has just affected the poverty, unemployment and wealth
distribution in Pakistan. Pakistan has not suffered financial institutional crises; it has
been affected in terms of international relations. By these crises the goals made by MDG
(Millennium Development Goals) seemed to be far off. Internal situation and political
instability made the situations worse. In 2007-08, the sharp rise in international oil and
food (specifically wheat) prices had led to rapidly expanding macroeconomic imbalances
in Pakistan. The effects of the global slowdown have also been transmitted through the
trade balance, with a slowdown in global demand and fall in commodity prices having
varying effects. Pakistan is an agrarian economy and was totally dependent on the
7

imports from other countries. Now other countries were already running short of cash
and resources to produce more, they increased the prices of the commodities which they
were exporting. Pakistan has to buy these commodities at a very high price even their
own produce of agriculture the wheat this created a demand for basics of life as a
whole. On other hand Pakistans political instability in 2007 and 2008 ignite the
downturn more. Our exports started to decrease as there was no trade on the side of
imports, foreign reserves were utilized to fulfill the basics of life. Now both imports and
exports were out of reach. Pakistan economy faced pressures from higher inflation
driven by spike in food prices, the acute power shortages, bewildering stock market,
perceptible contraction in the large-scale manufacturing and slowdown in services
sector.
On the basis of the facts and figures the study recommends various recommendations
and policy measures to the SBP and Government of Pakistan, that what various steps
can be taken during economic recessions to reduce its worse effects on the economy.

Chapter 1

Introduction
Recession or crisis is the part of the normal cycle of business. It is certain that they will
occur sooner or later. Recessions are the result of reduction in the demand of the products
in the global market. The agency that is officially uncharged of declaring a recession in
United States is known as National Bureau of Economic Research or NBER. The
NBER defines a recession as
A significant decline in economic activity spread across the economy lasting more than
a few months, normally visible in real gross product (GDP),real income, employment,
industrial production, and whole sale retail sales.

1.1

1.2

A recession in characterized by

Rising unemployment

Rising government borrowing

Falling share prices

Lower inflation

Falling investment

Global recession
The international monetary fund regards period when global growth is less than

3% to be a global recession.

The financial crisis from 2007 to the present is considered by many economists the worst
financial crisis since the great depression on 1930s. It was triggered by a liquidity
shortfall in the United States banking system and has resulted in collapse of large
financial institutions, the bail out of banks by national government and downturn of stock
markets around the world. The housing market also suffered. It contributed to the failure
if key businesses, declines in consumer wealth estimated in trillions of U.S dollars,
substantial. Financial, commitments incurred by government and a significant decline in
economic activity.

1.3

Global recession and Pakistan

It is feared that the global financial meltdown will affect the livelihood of almost
everyone in this interconnected world. In case of developing economies including
Pakistan the concerns are grave. The high fuel prices and approaching global slump has
worried the nation collectively. Stock markets suffering, banks sans deposits and
currency going on a downward trend. In addition to this Pakistan gets most of its FDIs
(foreign direct investment) from the west like all other Asian countries. Pakistani
products are also global and a slowdown in the west means slow down here as well.

1.4

Broad Objective

To know about the effect of global economic recession on Pakistan.

1.4.1

Specific Objectives

1. To know the impact of global crisis on inflation, poverty, and external sector
(exports and imports) of Pakistan.
2. To make some policy implications and suggests remedies to cope with the
financial recession.
10

1.5

Hypothesis
1. Global economic recession (2008) has an impact on Pakistans economy.
2. Global economic recession (2008) does not have any impact on Pakistans
economy.

1.6

Data collection

The data is collected from different websites, different articles and economic journals and
review of books and related literature.

1.7

Organization of the study

Chapter 1: Introduction
Chapter 2: Review of literature
Chapter3: Historical background
Chapter4: Global Economic recession and Pakistan
Chapter5: Conclusion and Recommendations

11

Chapter 2

Literature Review
The leading economists have called the current financial crisis as the worst financial
crisis since the one related to the Great Depression of the 1930s.The collapse of a global
housing bubble, which peaked in the U.S. in 2006, caused the values of securities tied to
housing prices to fell sharply, damaging financial institutions globally. Questions
regarding bank solvency, declines in credit availability, and damaged investor confidence
had an impact on global stock markets, which suffered large losses during 2008.
Economies worldwide slowed in late 2008 and early 2009 as credit tightened and
international trade declined. Critics argued that credit rating agencies and investors failed
to accurately price the risk involved with mortgage-related financial products, and that
governments did not adjust their regulatory practices to address 21st century financial
markets.

2.1

Impact of global financial crisis on Pakistan

The severity of global financial crisis has affected poverty, growth, and distributions in
the whole world, in same way it has greatly affected the economy of Pakistan. There are
different views about the impact of the crises on Pakistan. Some peoples have said that
the recession was only in European countries and some has said that it has just affected
the poverty, unemployment and wealth distribution in Pakistan.
It is true that the main reason of the financial crises was due to the soft loans given by the
European countries and later on their recovery became impossible due to this banks were
crashed and stock markets along with them. But Pakistan has not suffered financial

12

institutional crises; it has been affected in terms of international relations. By these crises
the goals made by MDG (Millennium Development Goals) seemed to be far off.
The developing nature of the financial sector has been a saving grace for the Pakistani
economy. Less developed linkages with international markets have meant that the direct
impact of the financial crisis has not been felt by the Pakistani financial sector. However;
effects of the crisis have been felt, even though in a limited manner, by the real sectors of
the economy. The effects of the global slowdown have been transmitted through the trade
balance; with a slowdown in global demand and fall in commodity prices having varying
effects, the capital account; with a significant reduction in private inflows to Pakistan.

2.2

Different views are as under

Burki(2008) discussed the impact of Global Financial crisis on Pakistan. He

remarked that the structure of Pakistani economy and its financial system will protect the
country from the full impact of the financial crisis in America and Europe. Pakistan is
poorly linked with the global economy. It will be spared the consequences of the
unraveling in many parts of the western financial structure. The price of oil has decreased
by 50 percent in a couple of months while the prices of traded food crops have showed
significant drops. This should provide Pakistan with some relief and stop the rapid
hemorrhaging in its foreign exchange reserves. Even though Pakistan may escape the
immediate negative effects of the turmoil in the West, there will be long-term
consequences. One of them is the possible impact on remittances from the United States.
The policy makers in Pakistan must make an effort to understand the nature of the

13

economic and financial crisis in the West and adopt the policies that will prepare it for
both the short and the long-term.
Jawaid(2010)

viewed about impact of global recession that it has left a bad

impact on the global economy as large financial institutions collapsed and downturns
were seen in stock markets. As an aftermath of the global financial crisis, a developing
state like Pakistan is facing a lot of problems such as rising inflation and unemployment.
Prices of most of the essential daily items have risen up by 30 to 40 per cent in the
wholesale and retail markets during one year (2009-2010) due to ever increasing prices of
petrol, gas and electricity. Unemployment is a major factor behind the increasing poverty
rate and the global financial crisis has further worsened the situation. Companies are not
expanding and downsizing is the most common word heard these days. People are
being laid off particularly from foreign and multinational companies in order to reduce
their operation costs. It is not just that the economic crisis has hampered the countrys
economy, but many other problems which were produced within the state. The
government needs to address all these issues on an urgent basis before conditions become
worse than they already are.
Siddiqui (May,19,2009) viewed about the effect of recession on unemployment
that no concerned ministries, departments and officials have any estimate, as to how
many people were unemployed and to what intensity the exodus of Pakistani expatriates
would be. Siddiqui gave a rough estimate that highest job losses were recoded in the
banking and textile sectors that were the worst affected industries in recent economic
slowdown, the telecom sector has laid-off about 10 per cent of employees. Pakistan was

14

not among the worst affected countries of world recession, but it faced the worst owing to
misconduct of economic affairs at local governmental levels.
Salman Siddiqui,Tuesday, May 19 2009, recession renders 300,00 Pakistani jobless, The
international News

Niazi(2009) if we see the economic activity trend in Pakistan, due to massive load
shedding, closure of factories and terrorism, Pakistan has been in a state of recession long
before it hit the US. Inflation rate has been 15 per cent according to The Economist in the
past one year and real GDP growth will slow sharply in fiscal year 2008/09 (July-June),
but will average five per cent per year between 2009/10 and 2012/13, driven by private
consumption and investment. The value of the currency will fall from an average of
PRs70.3: US$1 in 2008 to PRs90: US$1 in 2013. The conclusion is that the economy of
Pakistan has been in recession since 2003... The need of the hour is to utilize the
available resources in the best possible way so as to reap the maximum benefits out of
them. Unless we act on it now, we would further plunge into economic turmoil that
would eventually lead to a depression, which is an even severe state of recession.( Zille
REhamn khan Niazi, Thursday March 12, 2009, labels. Economy, Pakistan)

Jawed (2009) said that despite its domestic recession, the US is pouring billions
of dollars into Pakistan and is acting as the principal source of assistance to a country
reeling under economic and security pressures. Pakistan is a complex and heterogeneous
society that has undergone fascinating changes in recent years. Our strategic partnership
with the US might have experienced a boom and bust cycle but the ground reality is that

15

we need Americas help to integrate into the global economy just as America needs our
assistance for advancing its interests in the region. The US can help Pakistan galvanize its
economy and stabilize its political system so that Pakistan does not continue its
downward spiral and is able to make some tangible progress.

Sheikh (2008) described the effects of global financial crisis on the stock
markets and banks of developing countries and Pakistan. Pakistan is witnessing stock
markets suffering, banks sans deposits and our currency going on a downward trend. In
addition to this, Pakistan gets most of its FDI's (Foreign Direct Investment) from the west
like all other Asian countries. Pakistani products are also global, and a slowdown in the
west means slowdown here as well as most of the developing countries are depending
upon import and export. But there is another side to the store as well. Economic jolts did
come. But so far Pakistan has escaped the recent economic turmoil emerging from the US
and engulfing the developed European economies. No doubt, the West is suffering from
the worst financial crisis. But as the financial analysts go, it has created a situation loaded
with immense possibilities for Pakistan. Top bankers are expecting a lot of eastward
investment in the near future as options are drying out swiftly in the developed countries'
markets.

Ashraf(2010) Pakistan remained insulated from the direct effects of global crisis.
As 2010 draws to a close, effects of Global Financial Crisis (GFC) which started in 2007
continue to be felt in various parts of Euro zone, most recently in form of sovereign debt
crisis in Greece, Portugal and Ireland. Emerging economies like Pakistan remained

16

largely insulated from a direct impact of GFC, given low level of integration with global
financial system, and consequently, virtually negligible exposure to toxic assets
responsible for contagion impact.

Zaibi(2008) Experience of economic crises in various parts of the world in recent

years shows that unless timely action is taken, sharp economic downturns can cause a lot
of suffering to the poor working population..The sharp decline in the growth of output,
investment, manufacturing, (large scale manufacturing) and stock markets has an
important human dimension in terms of the loss of employment that results from such
severe downturns in economic activities.
Buchanan(2010) studied the job loss during the current recession.. In the current
economic recession, massive-scale job losses began in February 2008, when 63,000 jobs
were shed. By the following September, another 156,000 jobs were lost, which was
followed by an astounding 533,000 job cuts in November, which was the largest singlemonth job loss since the Great Depression. From December of 2007 to March 2009, there
have been 5.1 million job losses. Over this same period, investor and consumer
confidence has declined further, thus making it more difficult to rebound.
Shedlock(2008) focused on the contagion effects of recession from country to
country. The turnaround in the performance of the US manufacturing sector has been
especially marked in recent months and, in October, production and new orders fell to the
greatest extents since mid-1980 when the US economy was in the midst of a deep
recession. The downturn in the Euro zone gathered pace in October, with production and

17

new work contracting at the fastest rates in the survey history. Within the euro area, the
majority of the national manufacturing sectors posted series record losses for output and
new orders, including the big-four economies. Output fell at survey record rates in China
and Brazil, and at near-series records in Japan and the UK.

Sharif(2010) discussed the implications of global recession for developing

countries and concluded that the governments in the western capitals have been quick to
address the challenges that global and western financial system faced. But, the markets,
investors and consumers will take their own time to settle down. During this time,
recession is likely to remain a potent factor to slow down global and domestic economies
of developed, emerging and developing economies primarily because of contraction of
consumers demand and liquidity crunch. Pakistan will be affected by the global
recession but its economic woes are primarily homegrown.
Ahmad(2010) discussed the recovery phase of various developing countries as
India, Bangladesh, Srilanka, Afghanistan and Pakistan, Pakistans economy is likely to
grow at the slowest pace in South Asia in the next three years, according to the Global
Economic Prospects 2010 released by the World Bank which also stated that the region
was least impacted by the global recession. It has estimated real GDP growth rate of 3.7
per cent for Pakistan in 2009-10, 3 per cent in 2010-11 and 4 per cent in 2011-12. The
bank estimates that the current account balance would be negative 5.9 per cent of gross
domestic product in this fiscal and a negative 4.5 and 4.1 per cent for the year 2010-11
and 2011-12.

18

Chapter 3

Historical background
This chapter deals with the history of various economic recessions that have hit the
worlds economy and their impact on the economy of Pakistan.

3.1

The great depression of 1930s

In October 1929, the stock markets in the United States dropped rapidly. This was the
start of great depression. Thousands of investors lost large sums of money and many
were wiped out. This was the longest and worse period of high unemployment and low
business activity. Millions of the Americans were left jobless, homeless and penniless as
the banks, factories and stores were closed. The depression affected almost every nation
and became a worldwide business slump of 1930s.
On Oct, 29, 1929 the stock markets crashed, this day is labeled as black Tuesday. A
variety of other factors before and after this date caused and further worsened the
depression.
In 1920s (known as roaring twenties), there was a great disparity between rich and poor.
Above 60% of the population were living below the poverty line,5% of the wealthiest
people accounted for 33% of the Nations income and 40% of the nations wealth was in
the hands of the richest 1%.
In 1920 when America was prospering, many European countries were still suffering
from the effects of World War I. America soon became the world banker. As economy of
Europe was on decline, it stared defaulting on its loans and buy less American products,
so the great depression spread.

19

As the stock market regulations were loose before the great depression. Investors
started huge speculation. This led to falsely high stock prices. When the stock markets
began to fall the speculative investors could not make their margin calls and a massive
sell off began. On sep, 3, 1929, Dow Jones was at highest of 381 points and on Oct, 29,
1929, it fell to 41 points after the stock market crash.
Millions of Americans started to withdrew their money from banks of the fear that
banks would fail, putting thousands of banks in great danger. The more Americans
withdrew money the more banks failed and the more banks failed the more money
withdrew. By 1933, more than 11,000 of the 25,000 of Nations banks collapsed due to
massive withdrawal of funds. Economic conditions were further worsened.
Unemployment rate was at its highest in1933 when 25% of the workforce was idle.
When the stock markets crashed and banks failed and unemployment reached to its
highest people understandably stopped spending of money, which further deepened the
depression.
There was a sharp decline in worlds trade as each country was trying to protect its
industry by raising tariffs on imported goods,
A drought lasted from 1930 to 1936, known as Dust Bowl, rendered more than a million
acres of farmland useless. Hundreds and thousands farmers joined the ranks of the
unemployed.
In Germany poor economic conditions led to raise the powers of the dictator Adolf Hitler.
Japanese invaded china and Manchuria claiming that this economic growth will relieve
the depression. This militarism of Germany and Japan finally led to World War II (19391945). This was the end of Great Depression as nations increased their production of war

20

materials provided jobs to people and put large amount of money back to circulation.

3.2

Recession of 1950s

There were two recessions in the decade of 1950.

The Post-Korean War Recession: (July 1953 - May 1954)
The Eisenhower Recession: (August 1957 - April 1958)
Inflation was the major issue if 1950s. There were two major inflationary trends. The
first followed the end of World War 2 and the second at the onset of the Korean War in
1950. The Federal Reserve System made policies to regulate the economy and control the
inflation. The tightened money supply caused many business failures and high rate of
unemployment. At the end of 1953 Eisenhower faced a lagging economy due to Korean
War. He made efforts to stimulate the economic growth. There were a number of
developments in the business sector. Housing supply increased over 27%. There were
considerable improvements in the health and living conditions. The1950s are recognized
as the decade that eliminated poverty for majority of Americans. Economy was at its full
boom. By 1955 Gross National Product (GNP) was growing at a rate of 7.6%.the budget
for 1956 predicted a surplus of 4.1 million. The economy took a downward trend in the
summer of 1957 and reached its low in the spring of 1958. Industrial production fell by
14%, corporate profits fell sharply 25% and unemployment rose to 7.5% in1959, the
economy realized a $12 billion deficit, a new record for budget shortfall during peace
time. President Eisenhower did little to stimulate the economy because he worried more
about inflation not unemployment.

21

3.2.1

Effects on Pakistan

The global crisis did not leave any significant effect on Pakistan since business cycle was
already moving towards extreme depression. And GDP was also having a downfall from
few years. First decade in Pakistans history was all about recession which lasted up to
1959-1960. The whole decade of 1950s witnessed economic sluggishness that may be
attributed to communal upsets, lack of infrastructure, weak industrial base, lack of private
sector confidence on the infant economy etc. The economy started recovering by 1960.
Appropriate economic planning and its effective implementation helped the economy
recover quickly.

Pakistans GDP growth

Year

Growth %

1951-1952

-1.80

1952-1953

1.72

1953-54

10.22

1954-55

2.03

1955-56

3.53

1956-57

2.98

1957-58

2.54

1958-59

5.47

1959-1960

0.88

Source: Federal Bureau of Statistics (FBS), Govt. of Pakistan

22

3.3

The stagflation recession of 1970s

The 1973-1975 is a long and deep recession that is remembered mainly for simultaneous
increase in inflation and unemployment. The main reason for 1973 recession is the oil
shock. Organization for Petrol Exporting Countries (OPEC) made decisions to stop fuel
supply to United States, Japan and west Europe to punish them for Americas support to
Israel in Yom kipper war. Prices were quadrupled by OPEC. The oil prices unexpectedly
rose from $2.60\barrel in 1973 to $11\ barrel accounting for the rise in inflation. Inflation
rate was raised from 11% to 15%. Once the recession got underway the authorities
adopted expansionary monetary and fiscal policies. Fiscal policy was tightened in1974
with the budget deficit decreasing from 1.1% of GDP in 1973 to 0.4% of GDP in1974.
Fiscal policy was eased in 1975 and 1976.the 1973 oil shock presented policy makers
with an unfamiliar scenario, a contraction in output that coincided with a rise in prices.
By choosing to stimulate the economy high inflation was locked for the rest of the
decade, until the Fed deflated the economy in early 1980s, a move that brought the worst
recession of the post-war period. The alternative choice would have been to allow the
recession to worsen until inflation has subsided. Many oil importing countries suffered
recession similar to US and many oil exporting countries boomed- for the latter the oil
shock was a positive one, Japan, France, West Germany and United Kingdom all
experienced recession. The developing world boomed as Petro-dollars were invested in
their economies.

23

3.3.1

Effects on Pakistan

During 1960s Pakistan was seen as a model of economic development around the world
and there was much praise for its economic progression. Unluckily Pakistan faced war
with India in 1965, continuous political issues and then separation of its east part in1971.
Along with internal disasters financial crisis of 1973-75 added fuel to fire meanwhile.
After this global financial blow Pakistan recession facing economy moved further
towards bottom.

3.4

Recession of 1980s

(Jan1980-Nov 1982)
The 1980s recession can be mostly attributed to Iranian revolution which took place
around 1979.iran was the worlds second largest producer of oil at that time. The
revolution caused a sharp increase in price of oil around the world. The new Iran
exported oil at inconsistent intervals and in lower volumes pushing the prices higher. In
such a situation United States adopted a tight monetary policy to control inflation which
became the cause of another recession in the United States.

3.4.1

Effects on Pakistan

The global crisis of 1979-82 didnt affect Pakistan so much and economy achieved an
average growth of 7% per annum from 1977 to 1988.The business cycle also signifies
that Pakistan was in recovery period during this financial crisis time period. Another
evident fact which helped Pakistan during this period was signing agreements with World
Bank and IMF, foreign exchange inflows from overseas and handsome financial
assistance during Soviet War.

24

3.5

The Asian Crisis 1997

During 1997, the world economy has entered a slowdown that originated in South East
Asia. The Asian financial crisis started with the devaluation of Thailands baht. It was
soon followed by Philippines peso, Malaysian ringgit, and the Indonesian ruppiah. This
series of devaluation marked the begging of Asian crisis. This was the first sub-period of
the crisis that took place between july-oct1997.a second sub period of the currency crisis
started Nov, 1997 after the collapse of Hong Kongs stock market. The shock was felt not
only in Asia but also in stock markets of Latin America (most notably Brazil, Argentina,
and Mexico). This set a stage for the second sub period of currency depreciations.
This time not only the currencies of Thailand, Malaysia, Indonesia and Singapore were
affected but those of Korea and Taiwan also suffered. The second round hit the Taiwan
dollar, south-Korean won, Brazilian real, Singapore dollar and Hong Kongs dollar.
The currency crisis revealed severe problems in banking and financial sector of troubles
Asian economies. Financial markets are interlinked. The economic problems of troubles
Asian economies adversely affected United States, Japan and others. International
Monetary Fund played a leading role in Asian crisis and came up with rescue packages
for Thailand, Indonesia and South Korea.

3.5.1Effects on Pakistan
Pakistan was moving towards economic and financial prosperity with remarkable phase
and was not affected by financial crisis but huge political, constitutional and other
external and internal factors damaged the nation. Pakistan was among the Non-defaulter
nations till late 1990s but joined the list of defaulters during Asian crisis.

25

3.6

Current Global Recession (2008)

It all started in the United States with a boom in housing sector. Home loans were
available to people on easy credit conditions. More and more people were taking these
loans. It fueled the home prices.. As it was a good time and property prices were soaring
everyone was driven by the greed factor during the housing boom period. The common
sense practice of checking consumer repaying capacity was ignored in many cases. Many
people with low incomes and bad credit history were given home loans. These loans were
called sub prime loans as these were not a part of Prime loan market (as the repaying
capacity of the borrower was doubtful).
Since the demand for houses were at an all time high, many homeowners used the
increased property value to refinance their homes with lower interest rates and take out a
second mortgage against the added value of their homes. The lending companies also
attracted the borrowers with attractive loan conditions where for an initial period the
interest rates were low (known as adjustable rate of mortgage). However despite knowing
that the interest rate would rise after an initial period many sub prime borrowers opted for
them in the hope that as result of soaring house prices they would be able to refinance
their houses on more favorable terms.
Bubble that Bursts
"No boom lasts forever", the housing bubble was to burst eventually. Overbuilding
of houses during the boom period finally led to surplus inventory of homes, causing
house prices to decline beginning from the summer of 2006. As home prices started
declining refinancing became more difficult. Home owners, who were expecting a
refinance on the basis of increased home prices found themselves unable to refinance and

26

began to default on loans. Foreclosures (i.e. the legal proceedings initiated by a creditor
to repossess the property for loan that is in default) accelerated in the United States in late
2006. During 2007, nearly 1.3 million U.S housing properties were subject to
foreclosures activity. Increasing foreclosures and unwillingness of many homeowners to
sell their homes reduced market prices significantly. In 2007, records of 4 million unsold
existing homes were for sale. This excess supply put more downward pressure on the
prices; more homeowners were at risks of default and foreclosures.
What complicated the matter?
For original lenders these sub prime loans were very lucrative part of their investment
portfolio as they were expecting to yield a very high return in view of increasing home
prices. The lenders charged 2% higher interest rates than the prime loans, lenders were
confident that they would get a handsome return on their investment. In case the sub
prime borrowers continue to pay the loans installments, the lenders would get higher
returns and in case the sub prime borrowers defaulted, the lenders would have option to
sell his home (on a high market price) and recover his loan amount. The sub prime loans
were excellent investment option in both the cases as long as housing market was
booming. Things started getting complicated at this point.
When the home prices started declining, the attractive investments in sub prime
became risky and unprofitable. The sub prime borrowers were at messy situation. Many
of them opted to default on their home loans and vacated the houses. The lending
companies were in a situation where the loan amount exceeded the total cost of the house.
Eventually there remained no option but to write off losses on these loans. The Mortgage
Backed Securities (MBS) which by that time had become part of Collaterized Debt

27

Obligations (CDO) of giant investment Banks of U.S and Europe lost their value. Falling
prices of CDOs dented banks, investment portfolios and these losses destroyed banks
capital.

Mayhem in the Banks

The effects of these losses were huge. Global banks and brokerages had to write off
an estimated $512 billion in sub prime losses. It has led to the collapse of Bear Sterns,
one of the largest investment banks and securities trading firm. The crisis also hit
Lehman Brothers- the fourth largest investment bank in US, and the one which has
survived every major upheaval over the last 158 years. Lehman Brothers filed for
bankruptcy. Form this point a chain reaction on panic started. A loss in the net capital of
banks meant a serious damage to their capacity to disburse loans. Inter bank markets
across the world had frozen over. Stock markets across the world also became a victim of
this contagion. The global investment community became extremely risk avert.

3.6.1

Effects on Pakistan

Having less global connectivity Pakistan was not hit directly by the crisis but was
indirectly affected in the form of trade losses resulting from fall in demand and price
level. Appropriate policies for tackling the trade losses could not be made. Many
economists including Dr.Shamshad Akhtar, ex-governor State bank of Pakistan were of
the view that the crisis will not affect Pakistan so much but expectation was proved
wrong when the crisis pressed Pakistans real GDP from around 8% to 3% accompanied
with more than 25% inflation and painstaking unemployment. Index of Karachi stock
exchange fell down to 9144 points from the highest ever peak of 15373 points on
April,20 in the same year. Some after effects of the crisis were not seen in Pakistan which
28

includes solvency of banking sector and no panic regarding sale of currency are
prominently citable. The quite also showed a considerable effect on the common man by
decreasing his or her purchasing power.
No doubt financial 2008 crisis hit Pakistan but it was not the foremost reason of all
financial and economic problems of the nation, the country was facing more from inside
than outside.

29

Chapter 4

GLOBAL ECONOMIC RECESSION AND

PAKISTAN

As the financial crises started due to easy loan policies of the Europe and later on they
were unable to recover those loans it has directly affected the poor countries by making
their balance of trade deficit. It has directly affected the poverty of those countries. The
issue of global poverty has many reasons at its back. The stock markets of the developed
countries were crashed; banks and financial markets got crashed. All the industrial
countries were badly affected by this downturn. It leads to the poverty by the way of
unemployment. The crisis added 64 million people to the population living under $2 a
day. Prior to the crisis, the incidence of poverty in the developing world had been on a
trend decline. The poverty rates of the developing world as a whole during 1981 to 2005
were $1.25 and $2.00a day. In 2005 purchasing power parity (PPP) for consumption; the
former line is the average of the national poverty lines found in the poorest 15 countries
and the latter line is the average for the developing world as a whole. The trend rate of
decline in the $1.25 per day poverty rate over1981-2005 was 1% point per year, and only
slightly lower (about 0.8% points per year) for the$2 a day line.
This trend would have almost certainly continued in the absence of the crisis, given the
expected growth rates prior to the crisis (World Bank, 2008). To assess what impact the
crisis is likely to have on aggregate poverty we need to estimate the difference between
the expected levels of poverty. Pakistan has been affected by the financial crises in terms

30

of food price and oil prices; rest of the disturbance was due to political instability.
Due to the recession in the whole world the industry and the financial institutions were
affected. This effect decreased the exports of the countries. Industries were unable to
produce more because there was no cash available to the industries to produce more as
there was no cash in banks and in financial institutions, by this effect an ultimate
downturn came in the stock markets of these global economies and their investors lost
everything. This was on behalf of the whole world. Pakistan is an agrarian economy and
was totally dependent on the imports from other countries. Now other countries were
already running short of cash and resources to produce more, they increased the prices of
the commodities which they were exporting. Pakistan has to buy these commodities at a
very high price even their own produce of agriculture the wheat this created a demand
for basics of life as a whole. On other hand Pakistans political instability in 2007 and
2008 ignite the downturn more. Our exports started to decrease as there was no trade on
the side of imports, foreign reserves were utilized to fulfill the basics of life. Now both
imports and exports were out of reach. Pakistan became trade deficit due to the negative
pressure from imports and exports. The global financial crises raised the import bill. All
the reasons gave a very worse picture to the employment in Pakistan. Our textile
industries to sugar industry all were unable to produce their own products. Banks started
to merge rather to provide the employments to the people as they were becoming
insolvent to their central banks. The effect on our industry was same as in whole world,
which is lack of cash and resources.
The complete picture leads to unemployment and unemployment to the poverty. The
mass-scale unemployment came to the economy.

31

4.1

Impact of global financial crisis on Pakistan

The severity as we discussed above has affected poverty, growth, and distributions in the
whole world, in same way it has greatly affected the economy of Pakistan. There are
different views about the impact of the crises on Pakistan. Some peoples have said that
the recession was only in European countries and some has said that it has just affected
the poverty, unemployment and wealth distribution in Pakistan.
It is true that the main reason of the financial crises was due to the soft loans given by the
European countries and later on their recovery became impossible due to this banks were
crashed and stock markets along with them. But Pakistan has not suffered financial
institutional crises; it has been affected in terms of international relations. By these crises
the goals made by MDG (Millennium Development Goals) seemed to be far off. The
direct impact of the global financial crisis on developing countries, including Pakistan
has been limited due to non integration of the domestic financial sector with the global
financial sector. High fiscal and current account deficits, rapid inflation, low reserves, a
weak currency, and a declining economy put Pakistan in a very difficult situation to face
the global financial crisis.
Before the financial crisis set in motion global recession, Pakistans economy was facing
a number of challenges. High international food and energy prices (2007-08) fueled
inflationary pressure. Deficient infrastructure, power shortage and security concerns
combined with unemployment have also caused socio-economic instability. As the global
financial crisis unfolded (2008-09), financial crunch dried up FDI, privatization and
international loan prospects. Pakistan witnessed investment rate decelerated, slow down
of economic growth, less employment opportunities, rising poverty level, debt burden

32

reaching alarming proportions, and foreign exchange reserves fell to the lowest level of
US$ 6.7 billion in October, 2008, as a result of increase in international energy prices.
The large social and economic burden of fight against terrorism also stifled the economy.

4.2

Effect of recession on Pakistans macro economic variables

As the slump in the global economy prevailed, the Pakistans economy witnessed a
period of significant instability and a deterioration of most macroeconomic indicators.
Major macroeconomic indicators duly reflecting state of the economy before and after
increase in international commodity prices respectively in 2006-07 and 2007-08 and after
going through the global recession in 2008-09 are presented in the table below
Key macro economic indicators (Percentage)
2006-07

2007-08

2008-09

Inflation(average)

7.8

12

20.8

GDP growth

6.8

4.1

2.0

Large scale

8.6

4.8

-8.2

10.8

10.6

9.2

4.3

7.6

5.2

5.1

8.5

5.3

15.6

11.4

11.8

4.6

8.4

5.3

manufacturing
growth
Tax revenue(% of
GDP)
Fiscal deficit( % of
GDP)
External account
finance (% of GDP)
Foreign Exchange
Reserves (US$ Bn)
Current account

33

deficit(% of GDP)
Source: Annual Plan 2009-10, Planning Commission; Economic Survey of Pakistan 2008-09,

It is clear from the table that Pakistans macro economic indicators had worsened due to
global recession. One hand inflation and the fiscal deficit had increased during 2007/08,
on the other hand GDP growth had declined. Growth in large-scale manufacturing, which
had declined significantly in FY2007/08, became negative in FY2008/09. Fiscal deficit
also showed a considerable increase during recession years 2008 and 2009. Foreign
exchange reserves declined from $15.6 in 2006-2007 to 11.4 and 11.8 during 2007-2008
and 2008-2009.

4.3

Effects on Inflation

The global recession was preceded by a steep surge in commodity prices the world over.
Inflation was driven by supply shocks especially for food. Pakistan, being a large
importer of fuel oil and other commodities such as vegetable oil and at times wheat,
ended up importing inflation. Commodity prices, especially those of fuel oil, went to the
roof.

4.3.1

Price indices

Pakistan publishes four different price indices over the course of fiscal year.
1. Consumer Price Index (CPI),
2. the Wholesale Price Index (WPI),

34

3.

the Sensitive Price Index (SPI)

4. GDP deflator.
1. Consumer price index (CPI)
The CPI is the main measure of price changes at the retail level. It indicates the cost of
purchasing a representative fixed basket of goods and services consumed by private
households.
2.Wholesale price index (WPI)
The WPI is designed for those items which are mostly consumable in daily life on the
primary and secondary level; these prices are collected from wholesale markets as well as
from mills at organized wholesale market level.
3. Sensitive Price Index (SPI)
The SPI shows the weekly change of price of 53 selected items of daily use consumed
by those households whose monthly income in the base year 2000-01 ranged from
Rs.3000 to above Rs.12000 per month. The SPI also informs about the actual position of
supply: whether the commodity is available in market or not.
4.GDP deflator
The GDP deflator is a measure of the level of prices of all new, domestically produced,
final goods and services in an economy

4.3.2

Inflation during global crisis 2008-2009

Inflation situation in Pakistan 2008-2009

July

CPI
24.3

WPI SPI
34.0 33.

Core inflation
14.7

35

August

25.3

35.7

0
33.

16.4
17.3

September

23.9

33.2

9
31.

October

25.0

28.4

1
32.

18.3
18.9

November

24.7

19.9

7
29.

December

23.3

17.6

8
25.

18.8
18.91

January

20.5

15.7

8
20.

February

21.1

15.0

8
23.

18.85

19.1

11.1

4
20.

18.46

July-march 2008-2009 22.9

23.4

3
27.

17.8

March

Main components of CPI inflation

Item
CPI(General)
Food group
Non-food group
Core inflation

2006-2007
7.8
10.4
6.0
5.9

2007-2008
12
17.5
7.9
8.3

2008-2009
22.97
26.6
19.0
17.8

Source: Federal Bureau of Statistics (FBS)

In 2008-2009 the price level has been extraordinary in Pakistan. The overall CPI-base
inflation during fiscal year 2008-09 (JulyApril) averaged at 22.97 percent, much higher
than that of the last fiscal year 2007-08 (JulyApril) when inflation stood at 12 percent.
36

The CPI-based inflation during July-April 2007-08 averaged 12% percent as against 7.8
percent in the same period last year.
The single largest component of the CPI is the food group, which makes up 40.34 percent
of the CPI. The food group inflation rose to 26.6% much higher than the last year
17.5%.the non food group inflation also showed a considerable increase from 7.9 last
year to 19% in fiscal year 2008-2009. The non-food-non-energy inflation (core inflation)
was also higher at 8.3 percent the fiscal year 2007-08 as against 5.9 percent in the same
period last year and rose to highest of 17.8.

4.4

External sector impact:

The country macroeconomics environment was affected by increase of war on terror and
deepening of the global financial crisis which penetrated into the domestic economy
through a route of large decline in Pakistans exports and a visible drop in foreign direct
inflow. Although contraction in export receipts is more than compensated by massive
imports compression send out from global crash of crude oil and commodity prices, the
external sector vulnerabilities remain a threat. Pakistans economy continues to remain
exposed to the vagaries of international developments as well as internal security
environment. When people stop borrowing and start savings to pay off debt, it acts like a
shrinking money supply.

4.4.1

Exports

Exports started to face heat of global financial crisis since January 2009 and the
contraction of global demand has worsened export contraction. The exports witnessed

fractionally negative growth of 0.1 percent declining from $ 13.432 billion in

2007 to $ 13.414 billion in July-March 2008-09.However, exports fell by 25.9
37

percent in March 2009 over March 2008. Non-textile exports showed positive
growth of 9.8 percent which was more than off-set by strong negative growth of
7.6 percent by textile group. Even within non-textile the food group export grew
by 4.5 percent on the back of strong growth of 52.7 percent in rice export implies
that positive growth is mainly because of rice alone.

(Structure of Exports)
(Source Federal Bureau of Statistics)

The textile industry which has remained the major driver of the export growth

depicted sluggish performance and it registered negative growth of 7.6 percent. The nontextile exports grew by 9.8 percent on the back of strong performers like chemicals and
pharmaceutical (7.5%), engineering goods (39.5%), and cement (60.4%). These items
have very low weight and thus their huge growth could not impact overall quantum of the
exports. The export of petroleum products felt the pinch of falling petroleum prices and
they declined by 23.0 percent. The share of textile sector has declined from 57.9 percent
during 2007-2008 to 53.7 percent in 2008-2009. The data provide sufficient evidence of
38

negative fall out due to the global economic crisis.

4.4.2

Imports

Imports registered a negative growth of 6.6 percent in July-March 2009. The imports
stood at $ 26.1 billion as against $ 28.0 billion in the comparable period of last year. The
growth in imports reflected impact of substantial fall in oil and food imports in monetary
terms and these two items were responsible for 80 percent of additional imports bill last
year. Import compression measures coupled with massive fall in international oil prices
have started paying dividends and imports witnessed marked slowdown during 20082009.

Structure of Imports

Due
Source: Federal Bureau of Statistics

to the

39

dramatic fall in the prices of crude oil in the international markets, the petroleum group
imports were more or less stagnant on average.
The food and petroleum groups contributed positively though fractionally to additional
import bill during July-March 2008-09. This fractional addition was neutralized by
massive negative contributions from non-food and non- oil imports. Other positive
contributors to additional import bill were power generating machines which added
$464.7 million, agricultural chemicals other than fertilizer ($57 million), and electrical
machines & appliances ($59 million). The non-food and non-oil imports showed negative
growth of 10.5 percent which implies on drastic import compression. Palm oil prices in
the international markets have lost one third of last years value of March 2008 till March
2009. The consumer durables, transport group and telecom sectors responded positively
to the import compression measures. The growth in imports came from only a narrow
range of products.

4.5

Poverty and unemployment

Widespread poverty and income inequality are multidimensional conditions related to

a lack of income, security, education, health, employment opportunities, and voice in
public affairs .During the first half of this decade, the poverty headcount in Pakistan
showed an impressive decline from 34.5 percent in 2001-02 to 22.3 percent in 2005-06.
Almost 21 percent of households were near-poor in 2005, with incomes no more than 25
percent above the poverty line. The sharp increase in food and fuel prices in 2007-2008
pushed these people to extreme poverty. Food prices have a large bearing on poverty rate.
A review of price trends of essential items during 2007-08 indicates that the prices of
daily life such as wheat, flour, rice, edible, oil, vegetables and pulses showed a high

40

increase. Since April 2007, the economy has witnessed over 200% increase in the price of
palm oil; and an increase of 150% in wheat prices, while over 100% increase in the price
of oil in the international market. The government estimates that about 25% of population
live below the poverty line and this average increases just because of food inflation.
Economic growth has slowed down considerably during the global recession. The
industry and construction sectors have contracted due to the domestic slowdown and
energy shortage and also due to global recession. People are being laid-off especially
from foreign or multinational companies in order to reduce costs through downsizing.
According to one estimate, Pakistans unemployment rate in urban areas is nearly 40%
and in rural areas over 60%. Increase in poverty means, decrease in average standard of
living, poor health and education, and low-paying job, more population which again
makes it difficult to maintain their needs.

41

Chapter 5

Conclusion and Remedies

5.1

Conclusions
Data from various sources was examined thoroughly and conclusive evidence was

formed that current global crisis has significant impact on economy of Pakistan. Hence
we accept our null hypothesis. The crisis adversely affected Pakistans macro economic
variables. However the trend in Pakistan was different. Political situations and internal
issues of the country made the situation worse.
The developing nature of the financial sector has been a saving grace for the Pakistani
economy. Less developed linkages with international markets have meant that the direct
impact of the financial crisis has not been felt by the Pakistani financial sector. However;
effects of the crisis have been felt, even though in a limited manner, by the real sectors of
the economy. The effects of the global slowdown have been transmitted through the trade
balance; with a slowdown in global demand and fall in commodity prices having varying
effects, the capital account; with a significant reduction in private inflows to Pakistan.
Pakistan faces numerous challenges both from the domestic environment as well as
the negative outlook of the global economy. The impacts of the global crisis on Pakistan
were limited but Pakistans internal issues ignited the problem and made it worse.
In this chapter several policy measures are suggested to cope with economic recession
and the steps government of Pakistan and State Bank of Pakistan has taken to deal with
the issue.

42

5.2

Steps taken by the Government and State Bank of Pakistan

Knowing the depth of problem, the government and the central bank (State Bank of
Pakistan- SBP) jointly started an aggressive macroeconomic stabilization program with
the help of International Monetary Fund (IMF). Several stabilization measures were taken
by the government and the central bank to put the economy back on a stable path. The
response included measures in the area of monetary and fiscal policy.

5.2.1

Monetary Policy

SBP which was gradually raising its interest rate from 7.5 percent in April 2005 to 12
percent by May 2008 aggressively increased the interest rate to 15 percent by November
2008. Further, Cash Reserve Ratio was increased for effective liquidity management. In
addition, adjustment in the exchange rate helped in putting a dent in an otherwise
unsustainable growth rate of imports.
In the response to the rumors against the banking sector in Pakistan, SBP has launched an
operation against those who spread these rumors and taken steps to oppose the
misconceptions drawn against the banking sector in Pakistan, to stabilize the banking and
economic sector of Pakistan.
In particular, SBP provided extensive liquidity support to banks so that
(a) Their lending ability remained intact
(b) Confidence on the banking system was restored quickly.
These steps helped the economy to remain in its position against the adverse effects of
financial crisis.

43

Further, for supporting industry, and particularly the export-oriented sectors that were
pressured by the impact of the global recession, measures were introduced such as; easing
access to concessional financing schemes, and lengthening maturities.
The crisis has allowed the government and SBP to undertake some key reforms in
domestic public debt market. For example,
(1) Government has started announcing quarterly targets for T-bill (treasury bills)
auction.
(2) The decisions on cut-off rate for auction are now based on target and more
importantly this cut-off is now decided by the Ministry of Finance (instead of SBP).
(3) SBP is aiming to adopt a transparent liquidity management framework, including the
announcement of an explicit corridor for money market interest rates and making it
public.
These changes have far-reaching implications.
Besides improving transparency, these changes will allow the market and SBP to better
assess demand pressures on the Rupee liquidity in the inter-bank market. Also, it is
expected that market interest rate will become more sensitive to government borrowings
needs. Further, the market will not take changes in cut-off rate (which are purely driven
by government borrowings needs) as signal for monetary policy changes.
As a part of monetary policy management SBP has also introduced a number of reforms
in the foreign exchange market. More importantly, the SBP decided to gradually phase
out the provision of foreign exchange for import of oil. Now the inter-bank market is
already meeting the foreign exchange demand for import of furnace oil. By February
2010, SBP shifted all oil payments to the inter bank market.

44

5.2.2

Fiscal Policy

On account of massive government subsidies, policy inaction, and general expenditurerevenue mismatch, the fiscal position of the government deteriorated significantly during
2007-08. In order to remedy the position, the fiscal response has been two-staged. The
initial stage which was implemented during 2008-09 consisted of fiscal tightening, with
expenditure being curbed in order to lower fiscal deficit and a net zero quarterly limit on
government borrowing from the State Bank of Pakistan. The fiscal consolidation efforts
faced headwinds such as the deteriorating security environment and the domestic political
uncertainties along with the deepening of the global financial crisis and the overall
depressed macroeconomic environment. The unanticipated persistence of inflationary
pressures on the economy kept fiscal policy options under check. There has been a
significant improvement in fiscal performance during 2008-09 due to the policy shift,
with the overall fiscal deficit estimated to have dropped to 4.3 percent of GDP. The fiscal
improvement in 2008-09 has been largely based on reduction of oil subsidies and a slash
on development spending. With fiscal consolidation being one of the primary objectives
of the government during 2008-09, there has not been much space for fiscal stimuli to
neutralize the impact of the financial crisis.
The second stage of the fiscal policy response was geared towards recovery. After
attaining fiscal consolidation in 2008-09, fiscal policy is now focused towards providing
fiscal stimuli in order to boost economic activity. Fiscal deficit is likely to rise to 4.9
percent of GDP in 2009-10 mainly owing to a much needed increase in growthenhancing development expenditure. As a result of the targeted stimuli, development
expenditure was projected to increase to 3.8 percent of GDP in 2009-10 and further to 4.7

45

percent in 2010-11. The goal of the second stage of the fiscal response is to revitalize the
economy by a targeted increase in development expenditure that boosts production, while
increasing revenues and rationally curtailing non-effective expenses. The stimuli
provided under this phase will ease the challenges faced by the industrial sector, and
negate the impact of the global crisis on Pakistans exports.

5.3

Recommendations
a.

Policy Measures
Following policy measures may be adopted to address the challenges of financial

crisis
(1) Expenditures are to be decreased significantly to curtail aggregate demand.
(2) The state bank should follow a tight monetary policy to control inflation.
(3) The government expenditure should be for development related projects.
(4) The income support and other programmes should be implemented and improved.
Efforts should be made to make such programmes transparent.
(5) The public-private partnerships should be encouraged with the objective of making
private investments, including foreign investors, the most important funding source for
economic development;
(6) Reinforce the importance of sound governance, managerial and systemic mechanisms
to ensure that investments in the social sector are cost-effective and aimed at outputoriented service delivery.

46

b.

Agrarian Solutions

Pakistan is an agrarian economy. The input industry for agriculture and livestock
including dairy sector be domestically developed and cost of production be reduced to
encourage farmers. If we become self-sufficient in food, half of our problems will be
addressed.
c. Contingency Planning
Government and other institutions including the defense ministry should evolve a
comprehensive system of contingency planning to meet the unexpected
financial/economic crisis.
d. Checks and Balances
A system of checks and balances should be enforced in the national economic system to
effectively monitor the irregularities like illegal flight of capital etc and eliminate
corruption. This measure will curtail depletion of foreign exchange in the country and
ensure availability of funds for social development.
e. Banking Sector Reforms
Pakistans banking sector is made up of 53 banks, which include 30 commercial banks,
four specialized banks, six Islamic banks, seven development financial institutions and
six micro-finance banks. Reforms should be introduced in the banking sector to channel
savings, its Impact on Developing Countries for productivity rather than for nonproductive loans to customers. The banks should transfer benefits and profits to the
customers and help in poverty alleviation in the country.

47

f. International Finance Institutions (IFIs)

The bailout packages which IFIs offers are very risky and may be adopted as a last resort
because conditions like the withdrawal of subsidies badly affects the poor. Moreover,
these IFIs ask for imposing agricultural tax etc, which can stop that sectors growth.
g. Friends of Democratic Pakistan
Forums like the Friends of Democratic Pakistan should be asked to provide meaningful
support beyond mere rhetoric and empty promises. Regular interaction with these forums
is likely to bring positive response from them.
h. Forex Remittances
Some countries are much smaller than Pakistan but receives more forex remittances from
their expatriates. Our overseas community needs to support the country by increasing
forex remittances. Government should provide more incentives to the overseas
community in this regard.
i. Economic and Financial Intelligence
The Economist Intelligence Unit compiles the economic and financial forecast of all
countries. Similarly, we need to have such economic and financial intelligence outfits to
give feedback and early warning to national finance institutions regarding emerging
trends in these fields for timely steps to counter the crisis.
j. Economic Activity Bureau (EAB)
There is a need to establish an Economic Activity Bureau to accelerate economic activity
in the country.

48

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50