Pakistan and Global Economic Crises

Pakistan and Global Economic Crises

Pakistan and the global financial crisis

By Afshan Subohi

The current financial crisis in the West has critically exposed the vulnerabilities of a liberalised financial system. It has also highlighted the challenge that the policymakers and regulators are faced with in an increasingly globalised, ever-changing world.

The domino effect of a trouble sparked by US sub-prime debt defaults underscores apparent and hidden linkages of the complex market capitalism that never ceases to spring surprises. Just when the financial gurus in the West thought that they have devised enough safeguards to avoid repeat of 1996 Far East Asian financial turmoil that shook many countries, they are faced with a new, in a way, more grave situation on their own soil.

How well will they be able to respond is yet to unfold. Whether or not the Fed rate cut and the stimulus package will soften the impeding US recession only time would tell. But some consensus is emerging that the US sub-prime debt crises may linger on for two to three years.

The banking, other financial institutions, fund and asset management giant firms in the West, meanwhile, will come under pressure from depositors and shareholders on how prudent have been their investment and lending policies.

Far away from the US and Europe, Pakistan watched at the tumbling of capital markets, keeping its fingers crossed. The local banking hierarchy and fund managers were concerned. But the primary reason for their anxiety was different. They were worried about issues surrounding upcoming elections and worsening law and order situation. They were also concerned about the infrastructure deficit, particularly energy shortages. All these factors create a congenial environment for foreign capital infows.

When contacted for their comments on the possible impact of troubled Western financial markets on the Pakistan’s capital market including high performing banking industry, high-placed sources in banking expressed the...

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