Beruflich Dokumente
Kultur Dokumente
Presented to:
Mr. Kamran Abdullah
Presented By:
Abdul Hameed Baloch BM-25011
DEVALUATION
2.1 Introduction
2.2 Devaluation In Modern Economies
2.3 Types Of Exchange Rate Systems
2.4 Country Devaluation
2.5 Effects Of Devaluation
EXCHANGE RATE
3.1 SBP’s Policy About Currency
3.2 Exchange Rates
CONCLUSION
REFRENCES
PREFACE
The purpose of this study is to analyze the sharp drop in the value of PKR.
The international crisis following the events of September 11, 2001 and the ensuing
US attack on Afghanistan caught Pakistan in the crossfire, came with serious
CURRENCY
DEFINITION (1)
RUPEE (1)
The rupee (sign: ₨; code: PKR) is the currency of Pakistan. The issuance of the
currency is controlled by the State Bank of Pakistan. The most commonly used
symbol for the rupee is Rs, used on receipts when purchasing goods and services. In
Pakistan, the rupee is referred to as the "rupees", "rupaya" or "rupaye". As standard in
Indian English, large values of rupees are counted in terms of thousands, lakh (100
thousand, in digits 1,00,000) and crore (10 million, in digits 1,00,00,000).
Pakistanirupee
( روپی ہUrdu)
HISTORY
The origin of the word "rupee" is found in the Sanskrit word rūp or rūpā, which
means "silver" in many Indo-Aryan languages. The Sanskrit word rūpyakam means
The Pakistani rupee was put into circulation after the country became independent
from the British Raj in 1947. For the first few months of independence, Pakistan used
Indian coins and notes with "Pakistan" stamped on them. New coins and banknotes
were issued in 1948. Like the Indian rupee, it was originally divided into 16 annas (
)آن, each of 4 pice ( )پيسor 12 pie ()پاى. The currency was decimalized in 1961, with
the rupee subdivided into 100 pice, renamed (in English) paise (singular paisa) later
the same year. However, coins denominated in paise have not been issued since 1994
COINS
In 1948, coins were introduced in denominations of 1 pice, ½, 1 and 2 annas, ¼, ½
and 1 rupee. 1 pie coins were added in 1951. In 1961, coins for 1, 5 and 10 pice were
issued, followed later the same year by 1 paisa, 5 and 10 paise coins. In 1963, 10 and
25 paise coins were introduced, followed by 2 paise the next year. 1 rupee coins were
reintroduced in 1979, followed by 2 rupees in 1998 and 5 rupees in 2002. 2 paise
coins were last minted in 1976, with 1 paisa coins ceasing production in 1979. The 5,
10, 25 and 50 paise all ceased production in 1994.There are two variations of 2
ruppee coins, most have clouds above the Badshahi Masjid but many don't have. This
is noted by too less people.
All banknotes other than the 1 and 2 rupees feature a portrait of Muhammad Ali
Jinnah on the obverse along with writing in Urdu. The reverses of the banknotes vary
in design and have English text. The only Urdu text found on the reverses is the Urdu
translation of the Prophetic Hadith, "Seeking honest livelihood is worship of God."
The banknotes vary in size and colour, with larger denominations being longer than
smaller ones. All contain multiple colours. However, each denomination does have
one colour which predominates. All banknotes feature a watermark for security
purposes. On the larger denomination notes, the watermark is a picture of Jinnah,
while on smaller notes, it is a crescent and star. Different types of security threads are
also present in each banknote.
The State Bank has started a new series of banknotes, phasing out the older designs
for new, more secure ones.
2005 Series
Image Dimension Main Descriptio Date of
Value
Obverse Reverse s Colour n - Reverse issue
Gwadar
port, which
115 x 65 Greenis is a mega July 08,
Rs. 5
mm h Grey project in 2008
Balochistan
(Pakistan)
(*Recently the State Bank revised the Rs.20/- banknote, after complains of its
similarity to the Rs.5000/-, which caused a lot of confusion and financial losses, when
people gave out Rs.5000/- notes, thinking them to be Rs.20/- notes)
Depreciation and devaluation are sometimes used interchangeably, but they always
refer to values in terms of other currencies. Inflation, on the other hand, refers to the
value of the currency in goods and services (related to its purchasing power).
A key effect of devaluation is that it makes the domestic currency cheaper relative to
other currencies. There are two implications of devaluation. First, devaluation makes
the country's exports relatively less expensive for foreigners. Second, the devaluation
makes foreign products relatively more expensive for domestic consumers, thus
discouraging imports. This may help to increase the country's exports and decrease
imports, and may therefore help to reduce the current account deficit.
There are other policy issues that might lead a country to change its fixed exchange
rate. For example, rather than implementing unpopular fiscal spending policies, a
government might try to use devaluation to boost aggregate demand in the economy
in an effort to fight unemployment. Revaluation, which makes a currency more
expensive, might be undertaken in an effort to reduce a current account surplus,
where exports exceed imports, or to attempt to contain inflationary pressures.
To summarize
1. A devaluation of the exchange rate will make exports more competitive and appear
cheaper to foreigners. This will increase demand for exports
2. Imports will become more expensive. This will reduce demand for imports
3. AD= X-M Therefore higher exports and lower imports will increase AD
Evaluation
The size of this increase depends upon factors such as:
a) Spare capacity in the economy
b) Other determinants of AD
NOTE:
AD = Aggregate Demand
X= Exports
M = Imports
EXCHANGE RATE
The Pakistani rupee depreciated against the US dollar until the turn of the century,
when Pakistan's large current-account surplus pushed the value of the rupee up versus
the dollar. Pakistan's central bank then stabilized by lowering interest rates and
buying dollars, in order to preserve the country's export competitiveness. The year
2008 has been termed as disastrous year for the rupee as so far (up to August 2008) it
has lost 23% of its value since December, 2007 to a record low of 81.4 against US
Dollar. The major reasons for this depreciation are ongoing political crisis, increased
In recent few days, there was a record increase in the price of US Dollar against
Pakistani Rupee. Few months back, US Dollar was trading at about 60 Rupees in the
Inter-Bank Market.(4)
In the month of April, 2008, Pakistani Rupee was at a 64 rupee level against US
Dollar. If we go further back few months, then we will find US Dollar at 60 rupee in
the Inter-Bank Market.
In the past 10 or so months, the rate of US Dollar has increased almost 30% against
the Pakistani Rupee. The rate of Pakistani Rupee reached 81.4 rupees in the open
market on 16th of October, 2008. This was the highest ever value gained by US Dollar
against Pakistani Rupee in the history of Pakistan.
An increased US Dollar rate means weakened Pakistani currency. When the currency
is weakened, the overall economy suffers. Pakistan’s economy is already in a bad
situation. The world wide bad economic situation has made things even worse for
Pakistan and other third world countries.
State Bank of Pakistan is trying its best to try to improve the economic situation by
stabilizing the US Dollar rate. State Bank recently pumped in 50 Million Dollars in
the open market in order to stop the fast increasing price of US Dollar against Pak
Rupee.
For the past two days, value of Pak currency has recovered a little bit in both the
Inter-Bank Market as well as in the open market. However, a question raises here:
That is, is this an artificial recovery of Pak Currency or the economy really is
improving?
State Bank of Pakistan took different steps in order to prevent further drop in Pak
currency. Let’s hope Pakistan economy and world’s economic situation gets better.
Just around January of 2008, Rupee was quite steady at around 61 rupees to a dollar
but in the past 4 months, the depreciation has been alomst 23%. That too at a time,
when US dollar is also weakening as compared to other major curencies of the world.
Following graph shows Rupee’s one year comparison versus the US dollar.
On May 23, 2008, ONE Unit of other currencies was equal to following number of
rupees:
RATE YEAR/DATE
• 84.00 (16/10/08)
• 71.50 (26/07/08)
• 63.50 (01/04/08)
• 60.50 (01/11/07)
• 60.75 (05/08/2007)
• 58 (2004)
• 57.752 (2003)
• 59.7238 (2002)
• 61.9272 (2001)
• 53.6482 (2000)
• 51.90 (1999)
• 44.550 (1998)
• 40.185 (1997)
• 35.266 (1996)
• 30.930 (1995)
The Pakistani Rupee is sensitive to a lot of factors which have played their share in
bringing down its value.
Analysts are of the view that the depleting foreign currency reserves which
continue to fall at $800 to $900 million per month, bad to worst law and order
situation in the country, flight out capital estimated $70 million per day, huge gap
between import and export bill, mismanagement in privatization process, downgraded
credit rating by International Rating Agency Standard & Poors and Moody’s, inflation
rate floating more than 25 percent, widening current account deficit, heavy
government borrowing to cover a budget deficit and $500 million euro bond debt
obligation due in February are the major factors in the erosion of Pak rupee. Though
the depreciating rupee is the biggest challenge for Pakistan economy but our leaders
are busy in just politics and are least bothered like financial managers to chalk out
affective policies to pull the country out of economic mess.
Let’s take a look the major factors which are responsible for this turmoil.
BALANCE OF PAYMENT
In economics, the balance of payments, (or BOP) measures the payments that flow
between any individual country and all other countries. It is used to summarize all
international economic transactions for that country during a specific time period,
usually a year. The BOP is determined by the country's exports and imports of goods,
services, and financial capital, as well as financial transfers. It reflects all payments
and liabilities to foreigners (debits) and all payments and obligations received from
foreigners (credits). Balance of payments is one of the major indicators of a country's
status in international trade, with net capital outflow.
The balance of payments comprises the current account, the capital account, and
the financial account. "Together, these accounts balance in the sense that the sum of
the entries is conceptually zero."
• The current account consists of the goods and services account, the
primary income account and the secondary income account.
• The financial account records transactions that involve financial
assets and liabilities and that take place between residents and
nonresidents.
• The capital account in the international accounts shows (1) capital
transfers receivable and payable; and (2) the acquisition and disposal
of non-produced non-financial assets.
Income Account
The income account accounts mostly for investment income from dividends
and interest on credit and payments on foreign taxes.
Unilateral Transfers
Unilateral transfers are usually conducted between private parties. For
example, Mexico has a large surplus of remittances from the United States
sent by emigrant workers to loved ones back home.
The accounting entries in the financial account record the purchase and sale of
domestic and foreign investment assets. These assets are divided into categories such
as foreign direct investment (FDI), portfolio investment (which includes trade in
stocks and bonds), and other investment (which includes transactions in currency and
bank deposits).
If foreign ownership of domestic financial assets has increased more quickly than
domestic ownership of foreign assets in a given year, then the domestic country has a
financial account surplus. On the other hand, if domestic ownership of foreign
financial assets has increased more quickly than foreign ownership of domestic
assets, then the domestic country has a financial account deficit.
In economics, the term capital account usually refers to what the IMF calls the
financial account and capital account, combined.
Pakistan has a huge trade deficit, and our exports are very low. The dollars
that we get as a result of exports is small compared to the dollars we have to pay for
our imports. Bottom line, we need dollars, and cannot afford to let go of whatever
little we get in the form of our export bills.
If the rupee appreciates in value against USD, that will increase our export bill
for the buyer, and if that happens, we risk losing that client to a cheaper alternate, like
China or India.
So in order to 'retain' our exports, the state bank manipulates the exchange rate
for rupee, to ensure that it doesn’t appreciate by too much against the dollar.
Pakistan's payments problems have been chronic since the 1970s, with the
cost of oil imports primarily responsible for the trade imbalance. The growth of
exports and of remittances from Pakistanis working abroad (mostly in the Middle
East) helped Pakistan to keep the payments deficit in check. Since the oil sector boom
began subsiding in the early 1980s, however, remittances declined. Remittances
from overseas workers peaked at $2.9 billion in 1982/83, then dropped to $1.4
billion by 1997/98 and $1 billion from 1999 to 2001. This trend especially
accelerated during the Gulf War, when nearly 80,000 Pakistanis in Kuwait and Iraq
lost their jobs. Only about 25% of these jobs had been regained a year after the
end of the conflict. Increased imports and softer demand for Pakistan's textiles and
apparel in major markets also caused the current account deficit to further increase.
Pakistan is also a developing economy. Some of the items of its exports are oil
seed, cotton, rice, wool, fish fresh, chilled frozen, tobacco etc. Main export items are
rice and Cotton. Pakistan also faces severe competition in the world market like other
developing countries. The volume of exportable goods like cotton and rice also
depend upon climate in the country, which determine good or bad harvest. It is
agonizing to accept that even after good harvest due to favorable climate Pakistani
goods can fetch better prices only if the harvest in competing nations has been bad
due to unfavorable climate. Pakistan has made consistent efforts to increase and
diversify its exports but no cogent results have so far been achieved. Very recently
Pakistan has been paying acute attention in the sector of Information Technology.
Every endeavor is being made to enrich the younger generation of the country
towards this sector so as to boost software exports and promote email commerce.
India our main rival is far ahead of Pakistan in this field. Since the government now
give due recognition to the matter it is hoped that we will pick up momentum very
soon.
Pakistan has time and again devalued its currency anticipating that it will boost its
exports and will make the exportable goods of the country more competitive in the
world market. But these wishes have failed to materialize so far. Our goods failed to
compete with our neighboring countries despite the fact that their currencies were
stronger than ours. It is strange to see that despite using the same factors of
production and also devaluing our currency, our goods fail to compete with other
goods. This is so because our domestic input cost of production is quite higher
than our neighboring countries.
The fact is that constant increase in country’s imports after 20 percent decline in
the rupee is a dilemma that has surprised most economists who say Pakistan is
perhaps the second country after the US, which has seen its trade deficit widen
irrespective of the value of the currency.
It is pertinent to note that foreign exchange reserves of Pakistan are fast
depleting and except remittances from abroad other inflows are too low to cover its
huge trade deficit.
It is a pity that trade is being operated in such a way in Pakistan that
encourages imports and discourages local industry. It is claimed that Pakistan is the
only major cotton-producing and textile-based country where imported clothing and
fabrics dominate local markets because of smuggling menace.
It would not be out of place to mention here that the trade deficit, which
widened to over $20.74 billion during the financial year 2007-08, reflected a rise of
53 percent when compared to the corresponding period of last year. The trade deficit
in July only was 1.644 billion dollar and import surged to 3.549 billion dollar
compared to 1.905 billion dollar export.
EXPORTS
Pakistan's exports stood at $17.011 billion in the financial year 2006-2007, up
by 3.4 percent from last year's exports of $16.451 billion.
Pakistan exports rice, furniture, cotton fiber, cement, tiles, marble, textiles,
clothing, leather goods, sports goods (renowned for footballs/soccer balls), surgical
instruments, electrical appliances, software, carpets, and rugs, ice cream, livestock
meat, chicken, powdered milk, wheat, seafood (especially shrimp/prawns),
vegetables, processed food items, Pakistani assembled Suzukis (to Afghanistan and
other countries), defense equipment (submarines, tanks, radars), salt, marble, onyx,
IMPORTS
Pakistan's imports stood at $30.54 billion in the financial year 2006-2007, up
by 8.22 percent from last year's imports of $28.58 billion.
DEFICIT
Pakistan suffered a merchandise trade deficit of $13.528 billion for the financial year
2006-7. The gap has considerably widened since 2002-3 when the deficit was only
$1.06 billion. Services sector deficit for 2006-2007 stood at $4.125 billion which
equals the services export of $4.125 billion for the same year.
The combined deficit in services and goods stand at $17.653 billion which is approx
83.5 percent of country's total export of $21.136 (Goods and services). The rise in the
trade gap has been attributed to high oil import bill, and rise in the prices of food
items, machinery and automobiles.
Current account deficit - Current account deficit for 2006-7 reached $7.016 billion
up by 41 percent over previous year's $4.490 billion.
SUMMARY (11)
Devaluation decreases the prices of our exportable goods and simultaneously
increases prices of goods we are importing from abroad as well as increases domestic
price level of goods and commodities, thus reducing the purchasing power of the
people of the country. It may create inflation in the country. Our long experience has
shown us that devaluation is not the proper remedy for economic growth of the
country. It has resulted in increasing our debt burden to the extent that nowadays it is
not possible to obtain easily any aid from world lending agencies. It may be realized
that for whatever reason we devalue our currency it results in manifestation of
As of October 11, Pakistan's foreign currency reserves totaled $7.75 billion (Dh28.44
billion), having fallen $570 million in a week.
Critically, the central bank's share of this has fallen to $4.34 billion, while commercial
banks held $3.41 billion.
As a result of deteriorating external balances and dwindling reserves the rupee fell
almost 2.8 per cent in a day to a record low of 84.40, having lost 27 per cent since the
start of 2008.
QUESTION: How can Pakistan help itself stop the slide into economic chaos?
ANSWER: Raise interest rates, while easing banks' liquidity, impose capital controls,
ban imports of non-essentials, and limit how much foreign currency foreigners can
buy using rupees.
The rating on Pakistan's senior unsecured local currency debt has also been
lowered to B- from BB-, while the foreign currency debt rating has been
lowered to CCC+ from B.
Net foreign reserves of the central bank have fallen 67 per cent to just $4.7
billion since October 2007, as the country recorded an overall balance of
payments deficit of $5.7 billion for fiscal year 2008 ended June. For the first
two months of fiscal 2009, the overall balance of payment deficit expanded
more than six fold year on year to nearly $2.5 billion, with the current account
shortfall reaching 1.6 per cent of GDP against a full-year target of 6 per cent.
Standard & Poor's believes that stabilizing Pakistan's external position, and
thus avoiding near-term debt service stresses, will require substantial and
timely multilateral and bilateral assistance, concurrent with fiscal and
monetary policy measures aimed at paring aggregate demand to cut import
growth.
The negative outlook reflects S&P’s expectation that multilateral and bilateral
aid, including deferred oil payment schemes, may not be timely enough, or
sufficient in magnitude to stem the loss of external liquidity. It also
incorporates the view that the necessary policy measures, some of which are
likely to be prerequisites for multilateral assistance, will face obstacles and
delays in implementation, given the fractious and unstable domestic political
scene, and rising social tension.
The rating on Pakistan could be lowered further if the foreign exchange reserve
cushion continues to shrink and meaningful economic stabilization measures remain
wanting. Conversely, the rating could stabilize and eventually be raised if external
assistance and domestic policy programs successfully stabilize Pakistan's balance of
payments position and foreign reserves.
Pakistan cannot afford to run a persistent deficit in the balance of payments on current
account as it does not have unlimited reserves of gold and foreign currencies. It can
neither persistently borrow from the rest of the world. There is, after all, a limit of
accumulation of debt which may be for the development purpose.
(3) Development of industries having low capital output ratio. Pakistan with low
foreign exchange earnings cannot afford to import heavy machinery. If Pakistan
like China, Korea, Taiwan; Hong Kong, Singapore, takes up lines of production
having a low capital output ratio, it can lead to fast growing export. The exports of
carpet and rug industry, cigarettes industry, sports industry, leather industry, etc.,
have considerably increased the export earnings of Pakistan in the past few years
and have decreased strain on the balance of payments.
(5) Restoration of sick industries. The sick industries in the nationalized public
sector should be transferred to their owners. The private sector has the capacity to
reactivate the dying industrial units and increase production for use at home. It
can thus increase exports to earn the much needed foreign exchange.
(6) Reduction in export duties. Reduction in export duties, publicity of locally
manufactured goods in the foreign markets and adequate provision of credit to the
private sector for development of industries can greatly help in increasing export
earnings and relieving the pressure on balance of payments.
(7) High quality goods. In order to capture foreign markets, it is necessary that high
quality goods at minimum cost should be produced in the country.
(8) Pricing of goods. For increasing exports, it is necessary that goods should be
produced under optimal conditions and offered at competitive prices in the
international market.
(9) Packing. For promoting exports, high quality packing is essential. If packing is
not attractive and durable, it will not capture foreign markets.
(10) Creation of export agencies. For break through in exports; export agencies
should also be created in the private sector, following suit of China and other recently
industrialized countries.
(11) Joint ventures. The exports can also be pushed up by establishing industries
with joint ventures of foreign investors. The products of these industries can be
sold in the foreign markets and the country can earn sizeable foreign exchange.
4000
3000
2000
1000
0
1974-75 1979-80 1984-85 1989-90 1994-95 1999-2000 2004-05
-1000
-2000
-3000
-4000
-5000
Y ears
The only reason the current account balance has come into the positive is because of
the role of remittances after 9/11. The level of remittances rose sharply due to the
insecurity of non-resident Pakistanis in keeping their hard-earned money abroad. So,
this increased the amount of remittances entering into the country. This is why there is
a steep curve in the years after 2001. However, the increase in the level of imports
and the huge rise in the trade deficit offset this increase in remittances in the recent
years. The increase in imports has largely been due to the imports of machinery and
oil for the country.
-500
-1000
Trade Balance(US $ Million)
-1500
-2000
-2500
-3000
-3500
-4000
Years
The trade balance has remained negative in the past 32 years. By-and-large, it is due
the factors already highlighted above such as the narrow export base, export in
primary products, concentration in exports, and reliance on foreign products in the
technology-oriented products.
Only a handful of foreign tourists visited the ancient city in May and June. Peshawar,
once being the hub of foreigners touring various summer resorts located in Northern
Areas, is yearning for old good days which may not return due to the existing law and
order situation in the region.
City hotels and centuries old bazaars with a history including Qissa Khwani, Chowk
Yadgaar, Khyber Bazaar, Bazaar-e-Misgaran, Shah Wali Qatal, Tehsil Gorghathri,
Dabgri and various others in the walled city’s old areas, flocked by foreign visitors in
the past, are today deprived of their presence.
Handicraft, carpet, copper and brassware shops have no foreign customers and tour
operators have no business for ages.
“Only 14 foreign tourists visited the museum in May and June, two busiest
tourist months,” Directorate of Archeology and Museums Deputy Director Qazi Ijaz
Ahmed told Daily Times.
Out of 14 tourists, eight were Americans, two Belgians, two Chinese, one Japanese
and one was Greek.
Tourism has dropped 95%. There are over 300 hotels in only Kalam area of Swat
and there is no business causing huge financial losses to them.
The Frontier province has lost $40 million in the past five years, almost $8million
a year.
It is bitter open secret that in recruitment of the police (especially in the lower
ranks), there are several incidents of using under the table means for getting a
contractual job. Institutions which are erected by bricks of corruption and insecurity
of job cannot provide any guarantee to dispense justice and security to life and
property to the citizens. Therefore, meritocracy and job security is essential.
Most of the policemen carry obsolete guns and only five bullets per person
while robbers and terrorists carry latest weapons and surplus ammunition. Therefore,
the police avoid chasing such dangerous criminals by risking their own life. Thus
miscreants can easily take to their heels. Therefore, police should be equipped with
latest weapons and scores of bullets.
There must be coordination and sharing of information among intelligence
agencies, LEAs and the Interior Ministry.
Pakistan is harboring Afghan refugees and other foreigners on the basis of
religious fraternity. But, no country can afford to provide sanctuary to foreign
elements which are known to involve in illegal and mutineer activities and poisoning
the country with heroin culture. The government should take bold steps to send these
refugees to their native countries. It should provide nationality to peace loving people
according to the law of the land.
The police with the help of media should launch a Herculean campaign for
deweaponization of illegal armaments indiscriminately.
There is crying need of reformation of social, political and religious
institutions for proper socialization of the nation with the help of media by
indoctrinating altruism, fraternity, humanity, religious tolerance and patriotism.
Massive poverty stricken and illiterate population deprived of basic amenities of life
are frustrated due to rampant corruption, social injustice, economic disparity, and
political exploitation that force them to snatch their food which create law and order
situation.
The government should take a firm stand against the uncalled-for attacks by
the US army in Pakistani territory.
The World Economic Forum (WEF) recently came out with a report titled Global
Competitiveness 2006-07. It put Pakistan at number 91 out of 125 countries in the
global race for competitiveness, which is an eye-opener for the government and its
team.
Though the national economy’s competitiveness has increased by three points over
the previous year, it was still 48 ranks behind India (at no 43), 12 places behind Sri
Lanka (at no 79), but ahead of Bangladesh (at 99) and Nepal (at 110) in the region.
Nine factors that are critical to driving productivity and competitiveness were used as
the yardstick. These are as follows:
Pakistan’s low levels of per capita income and high incidence of poverty,
unemployment, illiteracy, widening gap of trade and current account deficits,
decreasing ratios of exports, unsuitable debts retirement strategy, regional and
sectoral parity are supposed to be one of the main reasons for this low ranking. It
should be a lesson for all the economic managers and advisors who are always
engaged to glorify the golden achievements of the government in the economic arena.
* Health and primary education (108th): The present government had sanctioned
Rs450 million for PSDP in the current budget. The government of Punjab is also
trying its best to spread the network of schools throughout the province and yet
performance is less then desired.
* Market efficiency (54th): No doubt the market efficiency has improved but a lot of
things need to be improved further. Free-market mechanism, positive role of
regulatory bodies, conducive macro-economic policies in the short period of time of
the governments, meaningful incentives, trade liberalization, financial deregulation,
corporate governance, and above all political commitment to make country a hub of
all the industrial activities has substantially increased. The bulk inflows of FDI, FPI
and joint ventures in the country verify it.
*Poor work ethics, cultural and historical background also negatively affect factors
like innovation, technological readiness and business sophistication. The firm use of
technology and rates of technology transfer are low, although penetration rates of
latest technologies are still quite low by international standards. Mobile telephones,
Internet, personal computers are increasing day by day in the country.
This crisis is also a major red alert stopping potential ‘well needed’ foreign
direct investments.
To get the accurate feed back and impartial results, over 11,000 business leaders
across the world were polled in a record number of economies (125). The survey
questionnaire was designed to capture a broad range of factors affecting an
economy’s business climate that are critical determinants of sustained economic
growth.
The most competitive economies in the world are those where concerted efforts are
made to frame comprehensive policies, which recognize the importance of a broad
array of factors, their interconnection, and the need to address the underlying
weaknesses in a proactive way..
SUMMARY
The low ranking in almost all the nine crucial areas shows why the country continues
to be uncompetitive and unresponsive to the challenges of a dynamic world economy.
The declining trends in the textile exports show increasing uncompetitive nature in
the international markets. Basic diversification of exports and the fragility of the
economy are largely missing.
Our country does not have the tools to acquire comparative advantage in other
commodities in a competitive world environment because of lack of innovation,
technological readiness or other factors identified by the WEF.
However, the first step to change is recognizing grey areas and now that this has been
done, let us hope that Pakistan shall be competitive in world markets in the days to
come.
SUBPRIME
Memories are short in the age of financial globalization. While a decade ago
contagion effects from spiraling Asian markets imperiled global economies, today a
lot of the market volatility stems from the subprime mortgage contagion from the US.
This role-reversal is illuminating – paradox plays a shrewd part in economics.
The subprime virus has truly gone global. What started as a localized outbreak
in the already lethargic US market has spread to supposedly safer markets and asset
tiers.
Major banks and other financial institutions around the world have
reported losses of approximately US$435 billion as of 17 July 2008. The
phenomenon of subprime caused major financial giants like Lehman Brothers to file
for bankruptcy. Since 1 January, 2008, owners of stocks in U.S. corporations have
suffered about $8 trillion in losses, as their holdings declined in value from $20
trillion to $12 trillion. Losses in other countries have averaged about 40%. It shook
the strongest of economies forcing countries to intervene to save their economies. The
US came up pumped $ 700 billion in its market.
A significant danger is that by increasing the price of imports and stimulating greater
demand for domestic products, devaluation can aggravate inflation. If this happens,
the government may have to raise interest rates to control inflation, but at the cost of
slower economic growth.
1) http://www.wikipedia.com
2) http://www.newyorkfed.org/aboutthefed/fedpoint/fed38.html
3)http://www.economicshelp.org/macroeconomics/exchangerate/effects-
devaluation.html
4)http://www.a1newspapers.com/blog/2008/10/11/is-pakistani-rupee-artificially-
stabilized-against-us-dollar/
5) http://pakistaniat.com/2008/05/25/pakistani-rupees-record-slide-versus-us-dollar/
6)Money Central, msn
7) http://www.crnindia.com/currency/pak_rupee.html
8)http://economictimes.indiatimes.com/Markets/Global_Markets/Pakistani_rupee_slu
mps_to_all-time_record_low_/articleshow/3574624.cms
9) http://www.cpifinancial.net/v2/news.aspx?v=1&aid=1167&sec=The%20Economy
10)http://www.scribd.com/doc/2472096/Measures-for-Correcting-the-Adverse-
Balance-of-Payments?autodown=doc
11) http://www.pakistaneconomist.com/issue2001/issue10/f&m2.htm
12) http://en.wikipedia.org/wiki/Economy_of_Pakistan
13)http://www.shvoong.com/newspapers/united-states-of-america/1833296-volatile-
law-order-situation-pakistan/
14) http://www.apakistannews.com/rupee-erosion-85556
15)http://server.kbri-
islamabad.go.id/index.php?option=com_content&task=view&id=5066&Itemid=43
16) http://intl.econ.cuhk.edu.hk/exchange_rate_regime/index.php?cid=22