Sustainable Economic Growth in the Face of Financial Crisis: A Case Study of Pakistan

Presented By: M. Atiq Ur Rehman (PhD Scholar)

Department of Economics, university of The Punjab, Lahore

FINANCIAL CRISIS
It is the situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated with a panic or a run on the banks, in which investors sell off assets or withdraw money from savings accounts with the expectation that the value of the assets will drop if they remain at some financial institution.

FINANCIAL CRISIS
Most of financial crises are associated with Banking panics Recessions Stock market crashes Defaults

CAUSES OF FINANCIAL CRISIS

Current financial crisis is caused by global macro liquidity policies and by a poor regulatory framework. (Adrian BlundellWignall, Paul Atkinson and Se Hoon Lee)

CAUSES OF FINANCIAL CRISIS

Fundamental mispricing in the capital markets. Failure to control poor underwriting standards in the mortgage markets; means no down payment, no verification of income, assets and jobs.

FINANCIAL CRISIS AND PAKISTANS GDP GROWTH

GDP

growth rate is a significant indicator to access the health of an economy.. In Pakistan case it became worse since 2007-08 from average of 6.0% to 2.0% in 2008-09 and declining trend onwards.

FINANCIAL CRISIS AND PAKISTANS EXPORTS

There had been 2.6 percent negative growth of exports, decreasing from $ 16.4 billion in 2007-08 to $ 16.0 billion in 2008-09.
The major economies that purchase Pakistan exports (Us and Europe) are also affected by the crisis and start importing less.

FINANCIAL CRISIS AND PAKISTANS FUNDS INFLOW The foreign direct investment inflows also fell more than 20 percent in 2009, imigiate after crisis and still showing a declining trend. Official Pakistan estimates for inward foreign direct investment (FDI) in 2009 showed a decline of over 32% when compared ran into problems in 2008. Pakistans total external debt is also increasing with the appreciation of dollar. Moreover Circular debt is another critical issue.

SUSTAINABLE POLICIES FOR SUSTAINABLE GROWTH

Total global cost of financial crisis is $12 trillion including bailout packages and injections. Policy Measures can be divided in two categorie. (A) Financial policies (B) Macro Economic Policies

(A) FINANCIAL POLICIES

Limit the consumer financing Diversity policy should be adopted and Hedge funds and banks should concentrate on their actual work. Behaving alike will create asset bubbles and systematic collapse.

Monetary authorities should work on some instruments with counter-cyclical features.

FINANCIAL POLICIES

Fairness in Financial Transaction Taxes (FTT) The banking sector should regain creditors confidence. Get rid of bad loans (reduce risk elements involved)

(B) MACRO ECONOMIC POLICIES.

Reducing Non-development expenditure. Alleviating debt burden / improving credit rating. Employment Generation and improvements in labor laws.

MACRO ECONOMIC POLICIES

Incentives for manufacturing sector (ie. investment tax credit). Investment in human capital/ social sector spending.

Export promotion and import substitution policies.

CONCLUSION

The recent global financial crisis is associated with banking panics, shortage of liquidity and other economic disasters. Many countries including Europe and US are severely affected by the crisis. In case of pakistan, the crisis is definitely painful for the economy but its not of severe nature.

CONCLUSION
Pakistan

can combat the crisis and adopt a sustainable growth path by using Proper, consistent and rational financial and macro economic policies.

The End