Opportunities for Pakistan in the Global Financial Slump: Economistan

FREE MARKETS: Many opportunities abound for countries like Pakistan due to the dynamics of the essential commodity prices coupled with low shipping rates. Time to harness these to our advantage.

By Saad Sarwar Muhammad

Monday, November 17, 2008

The whole world is undergoing a major financial crisis which has caused the downturn of almost all the developed world economies with job losses, bailouts and financial losses becoming the order of the day. In such unprecedented times of financial trouble the developed world is looking towards developing countries with huge reserves and financial muscle. Countries like China, Saudi Arabia and Turkey fit the bill. They were invited in the recently held summit of the G-20 to help the developed economies recover from the slump and in some way bail out the developed countries from the fiasco they are in.

The world has been undergoing a rollercoaster ride when it comes to the prices of different commodities, the stock market index levels and the value of dollar and yen versus other major currencies. Oil and Gold are two commodities that have hit a nosedive in recent times. Iran has reportedly given the intent to convert its reserves into Gold in order to overcome the deficit that can result in the reduction of price of oil. The value of dollar and yen is soaring at a time against major European currencies giving the indication of more trust in the resilience of the US economy as compared to the EU.

Pakistan has been suffering its own financial crisis lately, which somehow seems unrelated to the recent global recession. Pakistan’s problems have mostly been homegrown based on the energy crisis due to shortage of alternative energy power sources such as hydel, wind, solar and to some extent nuclear. Pakistan’s financial crisis has resulted from the withdrawal of funds from Pakistan’s stock market, the Karachi Stock Exchange (KSE) since the coming of the new civilian government. Pakistan’s stock market, KSE, has lost close to $36 billion dollars this year in market capitalization. Resultantly, the Pakistani rupee has also borne the brunt with the value of rupee falling from around 60 to a dollar from the beginning of the year to around 80 to a dollar at the moment (many currency dealers have also been arrested in the wake of the rupee devaluation, famous among them the firm of Khanani and Kalia). Not to mention the floor imposed on the KSE to allow the stock market to breathe a sigh of relief. The sigh has converted to deep sleep as the floor remains imposed after many many weeks.

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