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Presented By: M. Atiq Ur Rehman(PhD Scholar)
Department of Economics, university of The Punjab, Lahore
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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 onthe 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.
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FINANCIAL CRISIS
Most of financial crises are associated with
Banking panics Recessions
Stock market crashes
Defaults
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CAUSES OF FINANCIAL CRISIS
Current financial crisis is caused by global
macro liquidity policies and by a poor
regulatory framework. (Adrian Blundell-Wignall, Paul Atkinson and Se Hoon Lee)
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CAUSES OF FINANCIAL CRISIS
Fundamental mispricing in the capital markets.
Failure to control poor underwriting standards inthe mortgage markets; means no down payment,
no verification of income, assets and jobs.
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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.
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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 thecrisis and start importing less.
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FINANCIAL CRISIS AND PAKISTANS
FUNDS INFLOW
The foreign direct investment inflows also fellmore than 20 percent in 2009, imigiate aftercrisis and still showing a declining trend.
Official Pakistan estimates for inward foreigndirect investment (FDI) in 2009 showed a declineof over 32% when compared ran into problems in2008.
Pakistans total external debt is also increasingwith the appreciation of dollar. MoreoverCircular debt is another critical issue.
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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
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(A) FINANCIAL POLICIES Limit the consumer financing
Diversity policy should be adopted and Hedge
funds and banks should concentrate on theiractual work. Behaving alike will create assetbubbles and systematic collapse.
Monetary authorities should work on someinstruments with counter-cyclical features.
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FINANCIAL POLICIES
Fairness in Financial Transaction Taxes (FTT)
The banking sector should regain creditors
confidence.
Get rid of bad loans (reduce risk elements
involved)
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(B) MACRO ECONOMIC POLICIES. Reducing Non-development expenditure.
Alleviating debt burden / improving credit rating.
Employment Generation and improvements in
labor laws.
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MACRO ECONOMIC POLICIES
Incentives for manufacturing sector (ie.
investment tax credit).
Investment in human capital/ social sector
spending.
Export promotion and import substitution
policies.
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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 bythe crisis. In case of pakistan, the crisis is
definitely painful for the economy but its not of
severe nature.
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CONCLUSION
Pakistan can combat the crisis and adopt a
sustainable growth path by using Proper,
consistent and rational financial and macroeconomic policies.
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The End