Road to Recovery

ROAD TO RECOVERY
Causes of financial crisis
Impact of financial crisis on world economies
Effects of crisis on Pakistan economy
Steps taken by US government to tackle the issue
Steps taken by World Bank to solve the issue
Role of Pakistan government to solve the problem
Foreign aid to help Pakistan
Role of state bank

HOW THE PROBLEM STARTED
The roots of the current global financial crisis can be traced back to the fallout in the US subprime mortgage lending, which started in early 2007
It spread to other markets and economies via a combination of market failures and regulatory weaknesses
The ec We came through a period where people borrowed too much and we let our financial system take on much too much risk
eonomic crisis started from USA and it spread into many areas of the U.S. economy--banks, investment firms, insurance companies, and even the oil markets.

IMPACT OF CRISIS ON WORLD ECONOMIES
the world is facing worst economic crisis after great depression of 1930s
As economies slow along with falling price levels
Many established world economies collapsed
Many companies became bankrupt.
It mushroomed into the worst global slump since World War II, dragging Asia down with it.

EFFECTS OF CRISIS ON US ECONOMY
It caused enormous damage t U.S economy
There were many jobs lost by people and credit shrink.

EFFECTS OF CRISIS ON DEVELOPING COUNTRIES
Despite relatively solid banks and low debt levels, many Asian economies have suffered deeply as export demand from the West decreased.
Developing countries face a new challenge from the global financial crisis, which is rapidly becoming an unemployment crisis.
It estimates that 44 million additional people will suffer from malnutrition
As many as 53 million more people could be trapped in poverty as economic growth slows around the world, according to Bank forecasts.

EFFECT ON DEVELOPING COUNTRIES
Pakistan, Sri Lanka, and Maldives were particularly vulnerable because difficult political and social environments
prevented adequate policy measures to adjust to the terms of trade shock.
Additionally, their reliance on foreign funding has been relatively large.
The global financial crisis worsened their macroeconomic difficulties as sources of funding contracted.
Although India was well advanced in responding to the food and fuel price crisis and has generally maintained prudent macroeconomic management
the magnitude of the financial crisis has hit India very hard because of its strong connectivity to global financial markets.

EFFECT ON DEVELOPING COUNTRIES
The global economic crisis threatens to become a human crisis in many developing countries unless they can take targeted measures to protect vulnerable people in their communities
the evidence suggests that growth, investment, exports and employment have been hurt.
The outlook for 2009 is bleak as the global downturn deepens further. Growth in South Asia decelerated in 2008, falling from 8 percent in 2007 to 6 percent.
It is projected to decline to 5 percent in 2009, before recovering to 6 percent in 2010
The growth rate of Asian manufacturing and exports could be structurally lower for many years, and Asia's export-led growth strategy may no longer pay the same dividends as in the past," the IMF said.

EFFECTS OF CRISIS ON PAKISATN ECONOMY
There is not only energy crisis problem, every thing in Pakistan is in crisis either it is power supply, education, politics, economy even each and every thing. This time is the most difficult time of the history of Pakistan.
However, the sharp deterioration of the global economy poses significant risks to exports, remittances, and external financing.
On the internal side, political turmoil and uncertainties affected investor confidence which, together with macroeconomic imbalances, led to capital outflows
Pakistan has experienced severe external and internal shocks in the past year and is confronting a very difficult macroeconomic situation. The rise in international oil and food prices sharply inflated the country’s import bill and the subsequent slowdown in the global economy dampened external demand for Pakistan’s exports.
These are difficult economic times and the anxiety and strain are bringing more stress into people’s lives

EFFECTS ON PAKISTAN ECONOMY
Foreign reserve
Unemployment
Foreign investment
Low borrowings
Low savings
Halt in growth
Low living standard

STEPS TAKEN BY WORLD GOVERNMENTS TO TACKLE THE ISSUE
monetary authorities and governments took numerous policy actions to prevent the crisis from spreading further.
The main priority was to restore confidence in the global financial system
central banks may lower their official policy rates At the same time, monetary authorities may also opt to loosen their administrative procedures, such as the reserve requirement ratios, ceiling or floor caps, among others.
This underlines the importance of Pakistan regaining economic stability and protecting its poorest citizens during the process
Obama and his administration last week announced a program to help banks free themselves of so-called "toxic assets." These investments have tied up capital and kept them from resuming more normal lending to consumers and businesses.
The current crisis can be tackled only by less dependency on trade. The developing countries should be less dependent on the developed and they should first try to me self sufficient. For developed countries, this is a lesson that they cannot get away by using the resources of developing countries in their favor. Today, even USA is in a condition where it may have to ask for aid from other countries. So for USA, the only method of tackling is identifying its resources and spending less on military and more on its own assets developement. USA has to stop intervening it matters of other countries, and do its own business. by providing funding and technical assistance for developing countries;

STEPS TAKEN BY US GOVERNMENT
Fiscal stimulus – for example, infrastructure spending, tax holiday, and direct funding to low-income groups – may also be useful to prevent an otherwise hard landing in the economic activity of each country
t is well known that a reduction in taxes to boost consumption and investment will be compensated through much higher taxation in the future
it is useful to implement reforms on part of rules and regulation governing the operation of financial markets, market participants, and trading instruments
The operation also supports measures to ensure that poor and vulnerable people are shielded from major adverse impacts of the stabilization process
His plan calls for greater co-ordination of monetary and fiscal policy, improving lending between banks and helping struggling countries with a crisis fund, he added
Despite that frustration, Obama would not rule out a second round of bailouts. In its budget request to Congress last month, the administration included a placeholder for an additional $750 billion in bailout funds. Many lawmakers said there was little chance more money will be approved, given the political environment.
that too much spending would send the economy into out-of-control inflation.
President BarackObama's massive government spending plan to ease credit, help borrowers and inject billions of dollars into the financial sector. Long kept behind the scenes, the treasury secretary has emerged as the administration's champion of a plan that fueled an uptick in Wall Street markets.
. The main priority was to restore confidence in the global financial system. This was followed by the need to recapitalise financial intermediaries either through direct capital injections or merger and acquisition plans
Mortgage interest rates are at historic lows, putting more money in the hands of homeowners and helping slow the decline in housing prices. Companies are finding it easier to issue new debt to finance investment. The cost of borrowing for municipal governments has fallen significantly. Issuance of securities backed by consumer and auto loans is increasing, and the interest rates on these securities are falling. The Federal Reserve reports that credit terms are now starting to ease a bit.

STEPS TAKEN BY WORLD BANK TO CORRECT THE SITUATION
World Bank Provides US$500 million to Help Stabilize Pakistan’s Economy Pakistan has experienced severe external and internal shocks in the past year and is confronting a very difficult macroeconomic situation
Reform of institutions such as the IMF to allow countries like China to have greater influence. Senior posts at the IMF and the World Bank will open to candidates from the developing world.
The injection of an additional $1tn into the global economy through measures including a $500bn increase in the funding available to the IMF, an increase in the availability of money for developing countries through the IMF's "special drawing rights" to $250bn and a total of $250bn being set aside for trade assistanceThe World Bank’s conservative capital structure and finances puts it in an excellent position to help its members sustain key development programs through this very tough economic environment. World Bank to provide much-needed investments in developing countries dealing with the impacts of the global financial The bond issue comes at a time when developing countries are facing financing gaps of $270 - $700 billion, as private sector creditors shun emerging markets. Only one-quarter of the most vulnerable countries have the resources to prevent a rise in poverty. US$ 6 Billion, 3-year World Bank Fixed Rate Global Bond raises additional financing for developing countries during economic crisis
$50bn for the world's poorest countries

STEPS TAKEN BY PAKISATN GOVERNMEBNT
The rise in international oil and food prices sharply inflated the country’s import bill and the subsequent slowdown in the global economy dampened external demand for Pakistan’s exports
The Government of Pakistan has taken important policy steps to stabilize the economy, These polices have succeeded in reducing external imbalances, rebuilding foreign exchange reserves, narrowing fiscal overruns, and lowering inflation
And rightly so, as Germany is Pakistan’s most important EU trading partner and considering that the number of Pakistani exhibitors at German trade fairs is steadily increasing.

STEPS TAKEN BY PAKISTAN GOVERNMENT
On the internal side, political turmoil and uncertainties affected investor confidence which, together with macroeconomic imbalances, led to capital outflows.
policy measures that promote macroeconomic stability. It also seeks to strengthen Pakistan’s competitiveness by bolstering the financial sector and cutting barriers to business entry and exit
This entails improving the targeting of the government’s cash transfer programs, focusing especially on the Benazir Income Support Program

AID OF WORLD BANK TO PAKISTAN
The Poverty Reduction and Economic Support Operation is designed to support Government of Pakistan’s
World Bank Provides US$500 million to Help Stabilize Pakistan’s Economy Pakistan has experienced severe external and internal shocks in the past year and is confronting a very difficult macroeconomic situation. The rise in international oil and food prices sharply inflated the country’s import bill and the subsequent slowdown in the global economy dampened external demand for Pakistan’s exports. On the internal side, political turmoil and uncertainties affected investor confidence which, together with macroeconomic imbalances, led to capital outflows.
The Poverty Reduction and Economic Support Operation is designed to support Government of Pakistan’s policy measures that promote macroeconomic stability. It also seeks to strengthen Pakistan’s competitiveness by bolstering the financial sector and cutting barriers to business entry and exit.
The Government of Pakistan has taken important policy steps to stabilize the economy, These polices have succeeded in reducing external imbalances, rebuilding foreign exchange reserves, narrowing fiscal overruns, and lowering inflation. However, the sharp deterioration of the global economy poses significant risks to exports, remittances, and external financing. This underlines the importance of Pakistan regaining economic stability and protecting its poorest citizens during the process.”

STEPS TAKEN BY SATATE BANK OF PAKISATN
As economies slow along with falling price levels, central banks may lower their official policy rates. At the same time, monetary authorities may also opt to loosen their administrative procedures, such as the reserve requirement ratios, ceiling or floor caps, among others
Fiscal stimulus – for example, infrastructure spending, tax holiday, and direct funding to low-income groups – may also be useful to prevent an otherwise hard landing in the economic activity of each country
The fund also suggested governments and central banks cut interest rates, purchase corporate bonds and provide guarantees to bank loans in a bid to spur lending and investment.

SIGNS OF RECOVERY
These polices have succeeded in reducing external imbalances, rebuilding foreign exchange reserves, narrowing fiscal overruns, and lowering inflation. However, the sharp deterioration of the global economy poses significant risks to exports, remittances, and external financing. This underlines the importance of Pakistan regaining economic stability and protecting its poorest citizens during the process
India will likely grow 4.5 percent in 2009 and 5.6 percent in 2010.
China, the world's third-largest economy, will grow the most of the major Asian countries over the next two years, expanding 6.5 percent in 2009 and 7.5 percent in 2010, the fund said. Singapore's economy, which relies heavily on trade, finance and tourism, will likely shrink the most, contracting 10 percent this year and 0.1 percent next year.
— Most Asian economies face weak recoveries next year after contracting sharply this year, the International Monetary Fund said Wednesday, urging governments to boost spending to offset faltering global demand

G20 SUMMIT TO EASE THE SITUATION
The G20 countries will also beef up the Financial Stability Forum – the Basel-based grouping of central bankers, finance ministries and national regulators – giving it sweeping new powers to oversee the world's financial markets.
shorten the recession and save jobs
"We believe that in this global age, our prosperity is indivisible; we believe that global problems require global solutions; we believe that growth must be shared.“Under the agreement, the G20 countries proposed:
• New reforms of the global banking system, including institutions such as hedge funds, and other parts of the so-called "shadow banking system" coming under global regulatory control for the first time
• Tighter regulation for credit rating agencies, to prevent conflicts of interest
• A list of tax havens to be published immediately, and sanctions to be deployed against countries that do not comply with anti-secrecy regulations
• Completion of the creation of international colleges of supervisors for national regulators
• An agreement to do whatever is necessary to promote growth in individual countries, allowing for the possibility of the further use of fiscal stimuli in the future

SUGGESTIONS TO SOLVE THE PROBLEM
The current crisis can be tackled only by less dependency on trade. The developing countries should be less dependent on the developed and they should first try to me self sufficient
For developed countries, this is a lesson that they cannot get away by using the resources of developing countries in their favor. Today, even USA is in a condition where it may have to ask for aid from other countries. So for USA, the only method of tackling is identifying its resources and spending less on military and more on its own assets developement
Pakistan's natural resources may not be of much use unless the political situation of the country changes

SUGGESTIONS(contd)
USA has to stop intervening it matters of other countries, and do its own business. by providing funding and technical assistance for developing countries
active global coordination programmes were also implemented to minimise cross-border contagion effects. both macroeconomic and microeconomic policies may also play their roles in negating the adverse effects of the financial crisis.

SUGGESTIONS TO SOLVE THE PROBLEM
Focus on creating as much additional fiscal space as possible to support the domestic economy while preserving macro economic stability.2. Public spending that creates jobs, especially for the poor, will be essential. Building a robust safety net program is critical.3. The ongoing efforts to increase the efficiency and effectiveness of the banking sector must continue.4. Efforts to raise domestic productivity and competitiveness are critical factors for protecting exports.5. Greater attention to improving implementation capacity and preventing corruption in public spending becomes even more important

SUGGESTIONS
Everybody has got a part to play in solving this world downturn and I think the oil-rich states will want to play their part
Their interest is in a stable energy price, not in the massive volatility we have seen where oil prices have shot up and then come down again. Their interest too is in a well-functioning global economy
The monetary easing and large fiscal transfers already approved will help limit the damage to the economies,

It's very important for people to understand that, you know, it took us a long time to get into this mess. It's going to take us a while to get out of this," he said. "Progress is not going to be even. It's not going to be steady."

SUGGESTIONS
These basic principles - discipline in spending and saving, managing risk and debt followed by a yearly review - are keys to creating a lasting wealth and avoiding your own personal recession. If you don't take these steps, the only person you can blame for your downfall is yourself.

Road to Recovery

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Road to Recovery Presentation Transcript