BBA-3 B

Fundamentals of Finance

FINANCIAL CRISIS IN
PAKISTAN ARTCLES SUMMARIES

MEMBERS
SABA AROOJ
ABBAS MEHDI
ZAINEB SEGAL
NIMRA NASAR
FAIZAN SAMEER
MUHAMMAD BIN MASOOD
 Financial crisis: Countries at a risk of bankruptcy from Pakistan to
Baltics.

The article is written by “Ambrose Evans-Pritchard” in 2008, so it is according to the

economic situation of 2008 what was happening around the world in different countries.

At that time when article was written it was feared that Ukraine will default, the country
situation was getting worse. The banking and political situation almost collapsed. The steel mills
were shutting down, the president has dissolved the parliament and it was feared that Moscow
also could get involved in this crisis. The Promin Vest Bank was seized by the government and it
also closed the Kiev stock market. The IMF agreed on funding a fund worth several hundred
billion dollars to avoid economy collapse. Even Iceland was feared to be headed for a big
default. The hungry government also had to go for a bond auction to pay off its debts. According
to standards and poor and analysists in Pakistan analysis; Pakistan was unable to pay a single
penny for settling its debts because the central bank’s foreign reserves had fallen. Kazakhstan
banks default risk reached up to 70%, so it had to leave the oil prices below $80 a barrel and
because of all these reasons the analysists think that if the oil prices go even below the current
prices it would lead to a collapse just as the Russia’s.

Pakistan Facing Financial Collapse?

Written by:“Adrian fisher.”

The article is covering all the current situation of our country by covering from the tiny
part of the issue to the huge issue i.e. financial crisis of our beloved country Pakistan. First of all
in article writer discuss about that big incident which happened in our country and shake every
person very badly that is flood. This article is written by an international author I must appreciate
him that he write in favor of us. As d name indicates that it is about financial crisis, that Pakistan
is at that point of the financial crisis which is nearer to collapse. Pakistan already is taking
international loans for the survival of their people. On the other hand flood in the country
disturbs and hit more badly financial position of the country.Due to flood everything is destroyed
from homes to official buildings everything? Water take away all the things with itself, 1/5th
country was covered by the water. To face this disaster Pakistani government took more loan as
a result international loan increased. All crops are destroyed result as a shortage of the food. Due
to these worst situations people are too disturbed and are in anxiety situation. On the other hand
UN is refusing to give more loans by making lame excuses they said that health situation among
flood victims is stable which is truly wrong. Because spokeswoman of UNICEF team said that
threat about health is still there, children and women are dying because of no food. Only those
aids are received by them which are given by volunteers…He advises to all countries that it is a
time to unite and participate with each other to help out Pakistan because after such a long
disaster for Pakistan it is along run mechanism to rehabilitate every person it is only possible
when we all people united together.

Pakistan cautioned over Mexican Style financial crisis.

The article is about our financial situation comparison with the Mexican crisis. Former
World Bank vice president warned Pakistan that it is passing from similar to those situations
from which Mexico past 10 years ago. Shahid javed burki said that Mexico was hit due to
financial crisis because they had deficit current account, excessive speculative business activity
as compared to those business activity which increased economic growth and weak banking
system. He said all those things which is happening is similar to those of the Mexico. But it is
not sure that you people of Pakistan face the same crisis as they. The thing is that you have to fix
out these issues to save your country from such crisis. At that time head of the State Bank of
Pakistan SHAMSHAD AKHTER who is first woman head also; replied that we already aware
from all those downside risks which you are mentioning. Threats in our country are occurring is
due to inflationary pressure, increase in crude oil prices, and decrease in exports.Country is
already under control of MONETARY TIGHTENING PHASE”. Our economic management
team monitoring every financial issue very critically because this is that time period when
everything is related to which each other very closely if we increased one thing to increase
economic growth on the other side any other thing start decreasing the economic growth so we
are walking on a very tight rope….!!!

Pakistan facing bankruptcy as world financial crisis deepens:

Written by: By Vilani Peiris 
20 October 2008

With a country that’s politically challenged and economically instable it being on the brink of
default is obvious. With the decreasing foreign reserves what is alarming is that the value of
rupee is falling. This has increased the debt amount with the passage of time. The international
community has lost its trust in the country and we don’t receive loans now. Thus the only option
left is to borrow from the I.M.F at high interest rates. The country being an ally for the war on
terror is promised with aids and an economic crisis would jeopardize this war too. NIE warned
that Pakistan is facing an accelerated economic crisis and its going out of hand. The worst is that
the energy crisis is going hand in hand. With no electricity, no gas and such a crippling state of
economy , the nation is going through unrest. Musharaf’s time was better and the tides turned
when the PPP came to govern. The stock market is crashing from time to time and small
investors have flown away. There is a forecast that this will affect the real estate market which is
as irrationally overpriced as the stock market.

The LCDs receive adjustment loans by adjustment packages. This is to help them deal with
inflation, bankruptcy ,low economic growth rate. Pakistan being in such a state has received
more than 6 loans since 1980. The debate is whether this lending would affect the macro
economic factors in a positive manner or not .But again all that matters and runs with it is the
policies of the government. The policies of the government will thus decide if the economic
conditions would be better.

Capitalism And Interest Based Pakistan Economy, Recession:

Written by: By: Farhan Butt Posted: May 15, 2009

In this article writer discuss that financial crisis is totally related to economics as
compared to finance. The main financial crisis is recession. According to him the main cause
root of the world’s financial system is failing due to the capitalism and interest based financial
system. Then he started discussing Pakistan economy in which he said that financial crisis is
increasing day by day and as a result Pakistan has to suffer a lot due to it. The major challenge
from which whole world is passing is economic situation of the countries which are at high risk.
These financial crises also effecting different financial institutions like capitalistic companies
and banks. In Pakistan financial crisis arising due to the other crisis for e.g. the main crisis
started in the time period of the Pervaiz Musharraf ruling period when he suspended the chief
justice of the Supreme Court, Lal Masjid incident creates huge anxiety and disturbance and
destroyed the peace in the country. As a result incident suicide attacks started in the country and
still it is continue till now. Pakistan currency is losing its value as compared to the price of
dollar, KSE index exchange also suffered a lot of last, export is decreasing, foreign reserves
dropped, last year in November foreign reserve is around $14 billion but now the present
situation is that these foreign reserves reached to just $6 billion. Pakistan took loans from
international resources but due to corruption instead to get benefit from these loans; it is creating
more burdens on the economy of Pakistan. 2/3rd Pakistan’s population lies on less than $2 per
day and ½ population live below the poverty line. These financial crises we can solve within
years as well as within weeks but the thing is that we have to locate its cause root and eliminate it
from its root. All financial systems are based on capitalism and interests and these two factors
are also responsible to bring recession and financial crisis in the economy. Pakistan government
has to face a lot of problems and resolve many issues but government first priority should be
solving out financial crisis.
Multinationals in Pakistan Must Transfer Head Offices to Lahore
Or Islamabad:

In this article writer is discussing that all huge type of business is operating in a big city
of Pakistan which is Karachi, all the exports, imports are taken from that place, and all
multinational business headquarters are there. On the other hand it is that place where all type of
violence is occurring now a day which is destroying very badly the earning of the Pakistan.
Violence in Karachi is not limited to any specific issue it is totally spread among all sides for e.g.
politically, international issues and religious clashes also. Multinationals, banks and many small
business is passes from a very critical and worst situations. There is no proper security is offered
by the government to these institutions. They have only their own security which is totally
enough for them. The only solution is left to save Pakistan earnings is that these office should be
shifted to Lahore or Islamabad or any other place which is save from all these activities.

Politician's Corruption Indulges Macroeconomic Crisis In Pakistan:

SAB showed progresses in the economy of Pakistan but these progresses are linked with the IMF
and other loans. No economy can get progress based on loans. It causes uncertainty in the
economy. When it comes to monetary policy applying in Pakistan it should be mentioned that
monetary policy has been criticized from last twenty two months from business community and
economists as well. This policy only help out the economy of developed countries and the
economy of Pakistan is very different from the economies of the developed countries. Pakistan is
built on the foundations of Islam. Our leaders should take the exemplary examples of our noble
and religious heroes. The Muslims of Pakistan are confused as they may not have any history to
take examples from and follow them. With the declaration of NRO as unlawful 34 important
politicians were highlighted as most corrupt leaders. Pakistan has a tradition that every party who
comes in government blames the previous government for all the fails and problem caused.

IMF Loans to Pakistan: History and Current Prospects

By Saira Yousaf

SUMMARY:

The article starts with the importance of IMF loans to our country and how they help us in
dealing with is various financial issues. The most important of which are explained as balance of
payment deficits, stabilization of currency, rebuilding international reserves and many other
places where the loans help in short term payments of a nation.

Since this article is from January 2009, during those days a recent loan was taken, the IMF loan
of $7.6 billion, so the writing says that the government took this load only after realizing the
depreciation of exchange rate, depletion of foreign exchange reserves of $5 billion till November
2008, inflation rate of more than 25%, and increase in import bill by 35.2%. The loan was to help
Pakistan get out of the current financial crisis with certain IMF conditions

Then she moves on to the effects of the IMF loan and starts with a little history that we share
with International Monetary Fund. Overall Pakistan took eleven loans from IMF, out of which
six loan arrangements were made during the regime of Benazir Bhutto, two loans were taken
during Nawaz Sharif regime and two standby agreement and PRGF under Musharraf regime to
stabilize the economic situation of the country. However IMF did not provide these loans just out
of the blue, they imposed conditions such as the close monitoring, reduction of government
spending, revision in tax collection policies, change in policy/discount rate etc, the primary job
of which were to make sure that the loan in used in the most efficient manner.

Pakistani economy always faced a downfall after some time of the injection of the loans but in
the regime of Musharraf it was all changed as a full loan of 1.3 was successfully drawn as from
the loan amount.

The economic indicators after IMF loans in the last two decades followed a typical cycle.
Usually the trend after IMF loans show immediate decline in GDP growth rate, increased tax
revenues to GDP ratio, increased CPI, increased debt on the country and then restoration of the
conditions back to their previous states because of the cancellation of loans in the later years.

Then the writers comes back to the current IMF loan and elaborates that every loan is suppose to
have pros and cons, positive and negative impacts, however if all the requirements of IMF are
fully observed the following benefits can be expected, quick influx of liquidity, improvement in
credit rating by reducing the country’s default risk, enhancement of foreign exchange reserves,
stabilization of rupee, increased investor’s confidence and if not followed it may lead to increase
in policy rate, increased costs for the banks, increase in unemployment and increase in poverty
rate. Which would not be good for the state my any means.

Rays of hope in Pakistan, the world's powder keg

Michael O'Hallon
SUMMARY:
The article is written by an international writer Michael O'Hallon analyzing the remarks of Secretary of
State Hillary Clinton about Pakistani economic crisis and the meltdown. The article hardly focuses on the
financial crisis, rather declares Pakistan one of the most dangerous countries of this decade and portrays a
very negative image of our country.

However we as Pakistani knows that where our country actually lies. The writer also emphasizes on the
point that the nuclear capability of Pakistan may be comprised at any stage by the terrorists, which is a
very big threat. In the end he says that if Pakistan needs our help they should ask for it soon cause at later
stage even we wont be able to help them. But to my understanding that is not the case and God help those
who help themselves.