Top: Global financial crises and its impact on Pakistan.

Submitted to:

Syed Adil Asghar

Submitted By:

Ikramullah
01-120111-023 MBA-3(C)

Date:

8/1/2013

The main focus of this project is how financial crises affect the Pakistan. Financial crises is now become major issue for all developed and developing countries in the world. In Pakistan many in multinational start downsizing. As Nikolson, 2008 recognized that financial crisis which initiated in United States has now become a global phenomenon. At present, not only in United States but across Asia and Europe, stock exchanges crashed; collective losses of the London, Paris and Frankfurt markets alone amounted to more than 350 billion Dollars. Stock Exchange 100 index closed more than 323 points down in January 2008 (Times online 2008). This crisis apart from affecting the capitalist economies has distressed the Socialist economy like Russia as well; in May 2008 Russian stock market was fallen by 50% and the Russian central bank had to buy rouble in massive amount to prevent the severe falling against US Dollar and Euro (Erkkil, 2008). Firdausy (2002) talk about the Indonesian financial predicament which turn into a great economic crisis, transformed the country from one of the worlds fastest growing economies into one of its slowest growing economies. The economic crisis had a critically effects the Indonesian economic system, extensively the rise in unemployment. Haung et al. (2003) discussed in his paper both the beginning of the financial crisis in 1998 and the striking economic recovery afterwards in Russia and other Former Soviet Union (FSU) economies. Before the crisis banks do not lend to the real sector of the economy and firms use non-bank finance, including trade credits and barter trade, to finance production. Chansarn (2005) gave the aims to consider the efficiency in Thai financial sector after the financial crisis (1998 2004) by looking at the total factor productivity (TFP) growth in his paper. Furthermore, his study also scrutinizes the efficiency in commercial bank, finance, securities company sector and insurance company sector, and the efficiency in household and foreign financial companies. Coulibaly and Millrar (2008) found ambiguous results with the help of this study assesses the role of the Asian financial crisis of the late 1990s in the appearance and determination of the large current account surpluses across non-China emerging Asia, which has been a significant counterpart to the U.S. current account deficit. Arby (2001) studied the ups and downs of economy by decomposing the GDP of Pakistan and through business cycle movements; his work shows the expected rise in GDP growth from fiscal

year 2001. Husain (2009) summarized the six decades of Pakistans economy and how it was affected by the politics and other factors. Khan (2009) asserted that problems in policy implementation caused great damage to the economy of Pakistan, when it was facing crises. Martin and Kronstadt (2009) summarized the economic problems of Pakistan and relevant suggestions for the U.S. policy. Haque (2010) described the causes of financial distress in Pakistan and steps taken for the economic management of this catastrophe. Sheikh and Gopang (2009) analyzed the impact of global crisis 2008 on poverty in rural part of Sindh province, Pakistan and compared it with other provinces. Schmidt (2009) enumerated the short term and long term impacts of financial crisis 2008 on China. Chow and Li (2010) used the Cobb-Douglas function to study the growth of labor, capital and total factor productivity with special reference to China. This paper is proposed to find out which nation (Pakistan or China) was affected much by the external financial crises. Having less global connectivity, Pakistan was not hit directly by this crash but was indirectly affected in shape of trade losses resulting from fall in demand and prices level (Ali, 2009). Internal issues made the situation worse because appropriate policies for tackling the trade losses could not be made (World Bank, 2009). Pakistan spared the early days of this crisis and many experts including Dr. Shamshad Akhtar, governor of State Bank of Pakistan at that time, were of the view that crisis will not influence Pakistan so much (Subohi, 2008). But this expectation was proved wrong when crisis pressed Pakistans real GDP from around 8% to above 3% accompanied with more than 25% inflation and painstaking unemployment (Nanto, 2009 & Martin and Kronstadt, 2009). This crisis shocked the share markets and share prices too. Index of Karachi Stock Exchange, the biggest stock market of Pakistan, lowered down to 9144 points on August 27, 2008 (Peiris, 2008) from highest ever peak of 15373 points on April 20 in the same year (Mohammad, Hussain and Ali, 2009). On the other hand, some after effects of this crisis were not seen in Pakistan, of which solvency of banking sector and no panic regarding sale of currency are prominently citable (Haque, 2010). This crisis has also shown quite intensive impact on common-man which is suffering due to decrease in purchasing power and people in some rural areas are even selling their children for PKR 25000 i.e. around $ 300 only (Sheikh and Gopang, 2009). Peiris (2008) also asserted that household groups with below PKR 3000 income level were facing 33% inflation and only cereals were available to 20% of the poor most population after spending more than half of their

income. No doubt, financial crisis 2008 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, rather than outside and its misfortune regarding leaders, policies, political condition and involvement in international issues was still going on (Husain, 2009). Economic theory indicates that family decisions regarding labor supply, child care quality, birthrates, and other relevant factors are likely to be affected by the SMEs Business growth in Pakistan. A number of researchers have attempted to estimate the behavioral effects on various family decisions (i.e: the womens decision to participate in the SMEs business) of changes in income, wage rates, and the price of finished products. A sampling of earlier studies includes Heckman 1974; Robin & Spigelman 1978; Stolzenberg & Waite 1984; Leibowitz, Waite, & Witsberger 1987; Berger & Black 1991; Blau & Robins 1988, 1989, 1991a, 1991b; Connelly 1992; Hofferth and Wissoker 1992; Leibowitz, Klerman, & Waite 1992; and Ribar 1992, 1995; Michapolos, Robins, & Garfinkel 1992; Kimmel 1993, Averett et.al 1997; Powell 1997; and Anderson & Levine 1999. The more recent research includes Han& Waldfogel 2001; Baum II 2002, Oishi 2002; Doiron & Kalb 2005; Viitanen 2005; Kimmel & Powell 2006; and Lockshin & Fong 2006. For our econometric analysis, we employ the model by Connelly (1992) in which the decision of a woman to participate in the SMEs business is modeled as the outcome of maximizing her utility over goods. After the study of the articles and reviews of all writers or Authors mentioned above. I concluded that the view of that these global financial crisis are not comes in to being as a huge threat for the Pakistan like it comes for the others. It is also acceptable that its affects also show its impacts on the different kinds of nature of business and different relationships between Pakistan and other countries of the world which are affected by the Global financial crisis, because Pakistan is directly or indirectly connected with these countries. But Pakistan is indirectly affected by the global financial crisis because it is also covered by the lots of crisis at its own domestic level. So global financial crisis cannot act more than those crises which are currently being faced by Pakistan. Now after studying these articles, there is a question comes in mind that why Pakistan is not competing the other countries in the world and why it is far away from them. So, to overcome all the problems Pakistan must have to pay attention in its Agricultural and production level to improve the export level and also increase the trade level like China and India, which helps it to create good relationships with the countries of the world and increase trading around the world and its directly affect to the Economy of Pakistan in a good way and INSHALLAH Pakistan will touch the heights of Sky.

References:
Muhammad Suhail Nazar, Islamia, Amna Noor, Sara Zafar, Faiz M. Shaikh, University of Bahawalpur, Pakistan: Globalization, Economic Crisis And Its Impact On Smes Sector In Pakistan By Using CGE Model (2011). Nida Iqbal Malik, Subhan Ullah, Kamran Azam, Anwar Khan: The Impact of Recent Global Financial Crisis on the Financial Institutions in the Developing Countries: Global Perspectives (2011). Idrees khawaja, tahir mahmood and usman qadir: Social impact of global recession on Pakistan (2011). Rafaqet Ali and Muhammad Afzal: Impact of global financial crisis on stock markets:Evidence from Pakistan and India(June 2012).