The impact of financial crisis on Pakistan

Pakistan already has a fragile economy and is one of the countries in the South Asian region, which has been hit hardest by the financial crisis. During the crisis Pakistan faced a serious liquidity crunch and a refusal from the Saudi government to give concessions in trade oil.  As a last resort Pakistan approached the International Monetary Fund (IMF), which set stringent restriction for the nation.

Aftermath of suicide bomb which assassinated Benazir Bhutto,
27 December 2007 

The main sectors in Pakistan which were affected by the crisis were; trade deficit; balance of payment; inflation; foreign exchange reserve; poor banking sector performance; and the Karachi stock exchange. Political and economic stability complement each other; in Pakistan as well the economic crisis it also faced a growing political crisis with the assassination of Benazir Bhutto (Head of one of the biggest political parties in Pakistan); the war on terror; and the increased rate of daily suicide bombings.

The health of a country’s economy can be monitored by its GDP growth rate; in Pakistan it was 9.0% in 2005 and dropped to 2.0% in 2008. The growth of exports dropped to 2.6%, decreasing $16.4billion to $16billion from July to August 2008. The core inflation went up 18% and even crossed 20% for a brief period. Pakistan’s foreign reserve was $14.2billion in October 2007 and decreased by $3.4billion by October 2008.

The Karachi stock exchange was described as the “best performing stock market of the world for the year 2002”. However, on 26 December 2007, The Karachi exchange (represented by the KSC-100 index) closed by 14814 points, with a market capitalisation of Rs 4.57trillion ($58 Billion). Within a year the Karachi stock exchange had 653 listed companies with an accumulated capitalisation of Rs 1.85trillion ($23 billion). In January 2009, the KSC 100 index was 4929 points with a market capitalization of Rs 1.58trillion ($20 billion).

Due to the financial crisis food and fuel prices increased and were the main source of inflation in Pakistan. In 2008 the rate of inflation was 14.7%, which rose to 18% by 2009, which resulted in high prices and supply shortage of wheat, wheat flour, sugar and meat etc.