financial crisis(atiq.)

7/30/2019 Financial Crisis(Atiq.)

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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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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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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

financial crisis(atiq.)

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