Facts show that internal matters e.g. political instability, flaws in formation and implementation of indispensable policies, regular hostility with India and weak law and order conditions caused greater financial and economic damage to the country as compared to external shocks and global financial crises. From 1950 to 2000, except first decade only, Pakistan’s average GDP per decade remained higher than global average. Especially during second decade after its establishment, Pakistan’s financial and economic position was emerging really impressive (See Figure 1) but afterwards it became a part of the history and there is absence of any hope until now.
After being hit by Asian financial crisis during last years of twentieth century, Pakistan was already going through deficits when ongoing financial crisis erupted and situation became worse with the impacts of this catastrophe. Initially, no big shock was observed but effects were clearly visible later on and default was hardly avoided by financing from IMF. First three of the seven global financial crises (i.e. crises of 1857, 1873 and 1929), as studied by Draz, are not related to the Pakistan since independence was achieved from the British rule in 1947. The economic growth during inaugural decade of this newly established country was just 3.5% per annum and more emphasis was given to the refugees, constitution and political issues. Dr. Ishrat Husain, former governor of State Bank of Pakistan, describes this preliminary decade as ‘Flat fifties’ and asserts the divided geography (i.e. East and West Pakistan) as a severe matter right at the foundation time. The impact of financial crises on Pakistan’s economy is discussed below:
A. Financial Crisis 1958
First decade in Pakistan’s history was all about recession which lasted up to 1959-60 and recovery was started from this point forward; as far as global crisis 1958 did not leave any significant effects on Pakistan since business cycle was already moving towards extreme depression and GDP was also having downfall from few years. Moreover, boom was achieved within 9 years only while this global crisis was still in progress in some countries during those years as mentioned by Kindleberger & Aliber.
B. Financial Crisis 1974-75
Unluckily, Pakistan faced war with India in 1965, continuous political issues and then separation of its east part in 1971 which is Bangladesh at present. Even after a war, Pakistan’s economy was flourishing commendably but ‘The Golden Sixties’ for which Harvard experts’ guidelines were infused, as mentioned by Husain, turned into ‘The Socialist Seventies’ and result was decrease in GDP but increase in inflation and unequal distribution of income. Along with internal disaster, financial crisis of 1974-75 containing oil prices shock also added fuel to fire meanwhile. After this global financial blow, Pakistan’s recession-facing economy moved further towards bottom and finally started to recover in 1979-80.
C. Financial Crisis 1979-82
The global crisis of 1979-82 didn’t affect Pakistan so much and economy achieved an average growth of 7% per annum from 1977 to 1988. The business cycle drawn by Arby also signifies that Pakistan was in recovery period during this financial crisis time period. Another evident fact which helped Pakistan during this period was signing agreements with World Bank and IMF, foreign exchange inflows from overseas and handsome financial assistance during Soviet War. On the other hand, almost all the authors and experts are agreed that Pakistan paid a huge price of War assistance in the form of guns, groups and drugs culture, which are shaking the nation’s basis even now. ‘The Revivalist Eighties’ in Husain and ‘Growth with a Receding State’ in Khan clearly portray the real picture of this awful dilemma.
D. Asian Crisis 1997 and Pakistan
Facts are evident that Pakistan was moving towards economic and financial prosperity with incredible pace and was not much affected by financial crises but huge political, constitutional and other internal and external issues awe-inspiringly wrecked the nation. Pakistan was among non-defaulter nations till late 1990s but joined the list during Asian crisis. The Asian crisis also hit Pakistan and right after one year, nuclear tests in May 1998 made Pakistan isolated in economic and financial perspective since many sanctions were imposed from the Western nations. Later on, situation became better by the crisis management efforts and vigorous policies of military government. At this time, it was very hard to restore the investors’ trust since political government had caused a serious damage in the form of freezing accounts and some media issues.
E. Global Financial Crisis 2008
Having less global connectivity, Pakistan was not hit directly by this crash but was indirectly affected in shape of trade losses resulting from fall in demand and prices level. Internal issues made the situation worse because appropriate policies for tackling the trade losses could not be made. Pakistan spared the early days of this crisis and many experts including Dr. Shamshad Akhtar, governor of State Bank of Pakistan at that time, were of the view that crisis will not influence Pakistan so much. But this expectation was proved wrong when crisis pressed Pakistan’s real GDP from around 8% to above 3% accompanied with more than 25% inflation and painstaking unemployment and. This crisis shocked the share markets and share prices too. Index of Karachi Stock Exchange, the biggest stock market of Pakistan, lowered down to 9144 points on August 27, 2008 from highest ever peak of 15373 points on April 20 in the same year. On the other hand, some after effects of this crisis were not seen in Pakistan, of which solvency of banking sector and no panic regarding sale of currency are prominently citable.
This crisis has also shown quite intensive impact on common-man which is suffering due to decrease in purchasing power and people in some rural areas are even selling their children for PKR 25000 i.e. around $ 300 only. Peiris also asserted that “household groups with below PKR 3000 income level” were facing 33% inflation and only cereals were available to 20% of the poor most population after spending more than half of their income. No doubt, financial crisis 2008 hit Pakistan but it was not the foremost reason of all financial and economic problems of the nation. The country was facing more from inside, rather than outside and its misfortune regarding leaders, policies, political condition and involvement in international issues was still going on. Just imagine about the leadership and political condition from the fact, as reported in Pakistan’s Daily Jang, that president of country is alleged in 40 judicial cases within Pakistan and 9 cases abroad.
Figure 1: GDP Growth of Pakistan