Pakistan and Its Crisis
Literature Review
Many economists consider the financial crisis of 2007/2008, also known as the Global Financial Crisis of 2008 the worst financial crisis since, the Great Depression of the 1930s. It resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. The direct impact of the global financial crisis on developing countries including Pakistan has been limited due to non-integration of the domestic financial sector with the global financial sector (IMF, March 2009). However, the crisis has set in motion global recession which has not spared the low income countries.
How the recession affects an economy depends, among other things, on the state of the economic fundamentals of the country when the recession sets in. Economies with sound macroeconomic indicators will be able to face the recession with expansionary policies. However, countries with poor macroeconomic indicators at the onset of the recession can follow the expansionary policies only at the cost triggering a crisis of greater proportion.
The global recession has posed policymakers around the world with unprecedented challenges. Severely damaged financial sectors seemed immune to most responses, while fiscal stimuli and other policy tools have, at best, been sluggish to establish some stability in economies dealing with the spill over of the financial crisis into other sectors and a general economic slowdown. In a little over a year, what started off as a sub-prime crisis in US mortgage and housing markets, has amplified to a global economic downturn of an extraordinary scale, bringing to an end four years of booming economic growth across the world.
In developed economies, strains in the financial sector, a drying up of credit, and an increasing amount of risk aversion in the face of limited information about potential losses, led to the closing of many credit lines and the
Many economists consider the financial crisis of 2007/2008, also known as the Global Financial Crisis of 2008 the worst financial crisis since, the Great Depression of the 1930s. It resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. The direct impact of the global financial crisis on developing countries including Pakistan has been limited due to non-integration of the domestic financial sector with the global financial sector (IMF, March 2009). However, the crisis has set in motion global recession which has not spared the low income countries.
How the recession affects an economy depends, among other things, on the state of the economic fundamentals of the country when the recession sets in. Economies with sound macroeconomic indicators will be able to face the recession with expansionary policies. However, countries with poor macroeconomic indicators at the onset of the recession can follow the expansionary policies only at the cost triggering a crisis of greater proportion.
The global recession has posed policymakers around the world with unprecedented challenges. Severely damaged financial sectors seemed immune to most responses, while fiscal stimuli and other policy tools have, at best, been sluggish to establish some stability in economies dealing with the spill over of the financial crisis into other sectors and a general economic slowdown. In a little over a year, what started off as a sub-prime crisis in US mortgage and housing markets, has amplified to a global economic downturn of an extraordinary scale, bringing to an end four years of booming economic growth across the world.
In developed economies, strains in the financial sector, a drying up of credit, and an increasing amount of risk aversion in the face of limited information about potential losses, led to the closing of many credit lines and the