Article Type

Article

Description

Pakistan had been suffering from three serious external shocks before the recent devastation to human lives, property, infrastructure and social services by the floods struck the country in August-September 2010. Pakistan was engaged in fighting the militants and terrorists since the U.S. initiated the war in Afghanistan in 2001. Forty three billion dollars of losses have been incurred so far in the fight against terror and the country has been virtually shut out as a destination for investment, capital flows, tourism and trade. Thirty thousand civilians and six thousand Army, Para-military and Police officials have lost their lives. The Second shock occurred in 2007 when the world food and fuel price went through large, sudden and abrupt hikes. As Pakistan did not adjust these prices domestically and the government had to absorb the impact of this hike through the budget fiscal deficits became quite large. The deficits were financed by borrowing from the State Bank of Pakistan and the consequential monetary expansion led to 25 percent inflation, depreciation of exchange rate and lower growth. The decline in the purchasing power of the Pakistanis due to stagnating income, double-digit inflation and growing unemployment for the past three years has resulted in a major demand shock. Third, the synchronized recession in the global economy as a result of the financial crisis of a magnitude not witnessed since the 1930s hasn’t helped either in stimulating domestic economy. It is in this context that it must be realized that no country with the resources and capacity such as possessed by Pakistan can single handedly meet the onslaught caused by these floods. The pace, extent and magnitude of the stimulus provided jointly by the domestic and international community would determine as to how soon the Pakistani economy is stabilized.

Publication Source

Criterion quarterly

Publication Date

1-2011

Pages

22

Download

Share

COinS