Impact Of Financial Crisis On The Developing Countries Economics Essay
經濟危機對于發(fā)展中國家的影響

2007年的全球金融危機到目前為止來看，是一個由美國銀行體系的流動性缺口與大型金融機構的萎靡不振的結果,低迷的股票市場和全世界各國政府對銀行的救助(艾烏利,2008)。房地產市場在許多領域遭受重創(chuàng)，這表明了大量的驅逐和長期空缺的后果。許多經濟學家認為這場危機與1930年代的大蕭條(Pendery,2009)相比，是最嚴重的。全球金融危機金融危機產生在關鍵的企業(yè)倒閉,消費者財富預期下降了數以百計的數萬億美元,這是政府導致的重大的經濟事項。許多原因已經由專家們推薦為了不同等級。(貝利和艾略特,2009)。

監(jiān)管和以市場為基礎的解決方案已經被執(zhí)行或還未考慮,但值得注意的是世界經濟在2010 - 2011時期(魯比尼,2008)風險仍將保持。2006年,在美國房地產泡沫達到頂峰后崩潰。

The global financial crisis of 2007 to the present is a crisis caused by the liquidity shortfall in the United States banking system and which outcome in the crumple of large financial institutions, downturns in stock markets and the bailout of banks by national governments around the world (Ivry, 2008). The housing market in many areas has also been suffered which showed the consequences of numerous expulsion and protracted vacancies. Many economists considered this crisis as the worst global financial crisis as compared to the Great Depression of the 1930s (Pendery, 2009). Financial crisis put in the collapse of key businesses, declines in consumer wealth expected in the hundreds of trillions of US dollars, a momentous decline in economic activity and substantial financial commitments incurred by governments. Many reasons have been recommended with varying weight allotted by experts (Baily & Elliott, 2009).
 
Regulatory and market-based solutions have been executed or are below consideration, while noteworthy risks would remain over the 2010-2011 periods for the world economy (Roubini, 2008).In 2006, the collapse of the housing bubble peaked in the U.S for which the values of securities fixed to real estate pricing to plunge later on, destructing financial institutions worldwide (Glass, 2009).
 
The world saw a major impact on global stock markets where securities experienced huge losses during the late 2008 and early 2009 because of the questions regarding smooth decline in credit availability, bank solvency and damaged investor’s confidence. As credit tightened and decrease in international trade, the worldwide economies slowed down during the period (IMF, 2009).
 
According to some critics, investors and credit rated agencies failed to accurately value the risk involved with mortgage-related financial products and to address 21st century financial markets, governments were not able to adjust their regulatory practices. Central banks and governments reacted with monetary policy expansion, institutional bailouts and unparalleled fiscal stimulus (Declaration of G20, 2008).#p#分頁標題#e#
 
The crisis spread around the world when the financial Armageddon was avoided, collapsing banks across Europe and lashing countries from Iceland to Pakistan to seek out crisis aid from International Monetary Fund. At last, the world fall into recession when vile circle of tightening credit condensed demand and rapid job slashes took hold (The New York Times, 2010).
 
1.1.1 Causes of the Financial Crisis
 
The instantaneous reason of the crisis was the bursting of the U.S housing bubble which reached in approximately 2005-2006 (Lahart, 2007). Default rates rising on adjustable rate mortgages (ARM) and subprime commenced to increase rapidly after that. Large inflows of foreign funds and low interest rates formed easy credit conditions for a number of years before the preceding crisis which encouraged debt financing consumption and fueled a housing construction boom (The New York Times, 2008). Both these money inflow and easy credit contribute to the U.S housing bubble. Mortgage loans, credit cards and auto loans were easily accessible for consumers and they assumed an unprecedented debt load (Paul Kragman, 2009).
 
The number of financial agreements like collateralized debt obligations (CDO) and mortgage backed securities (MBS) derived their significance from mortgage payments and housing prices get greater than before. Institutions and investors globally were permitted to invest in the U.S housing market after such financial innovations. Major financial institutions reported in big losses that had invested and borrowed heavily on subprime MBS when the housing prices fall, which then also resulted in home worth less than the mortgage loan, providing a financial inducement to go through foreclosure. The ongoing plague which commenced in late 2006 in the U.S continues to erode the financial potency of banking institutions and drain wealth from consumers. As the crisis spread out from the housing market to other divisions of the economy, defaults and losses on other types of loans are also increased considerably. Total losses worldwide are projected in the trillions of U.S dollars (IMF, 2010).
 
As the credit & housing bubbles assembled, the financial system of the world become expandable and also become increasingly fragile because of series of factors. The important role played by financial institutions were not acknowledge by the policy makers such as investment and hedge funds, as these institutions were providing credit to the U.S economy but they were not focus to the same set of laws, policies and regulations (Timothy F. Geithner, 2008).
 
Economic activities went down when huge losses crashed the strength of financial institutions to lend. Assuming major additional financial obligations, governments also bailed many big financial businesses and executed economic incentive programs. Lehman Brothers, who filed their bankruptcy on 15th September 2008, was culminated by the crisis (Financial Times, 2009). Large European and American banks lost more than $1 trillion from bad loans and on toxic assets starting from January 2007 to September 2009. These losses are probably go up to peak $2.8 trillion from 2007-10. European banks were forecast to reach $1.6 trillion and American banks losses will reach $1 trillion (Stephen Mihm, 2008).#p#分頁標題#e#
 
Impact of Financial Crisis on the Developing Countries
 
Developing countries are affected by current financial crisis in two ways.
 
First, the developing countries have been impacted by the economic downturn in developed countries. The particulars which come under pressure on developing countries include:
 
Trade Prices & Trade: Imports and the demand for oil, copper and natural resources have been increased in India and China which piloted to greater exports and higher prices from African countries. Ultimately, poorer countries will have knocked on effects when the growth of India and China is likely to slow down (Dirk Willem te Velde, 2008).
 
Remittances: During recession, fewer migrants will head towards developed states, so remittances will go down and most likely lesser number of remittances per migrant. Remittances flowing to developing countries will also fall (Dirk Willem te Velde, 2008).
 
Foreign Direct Investment: This will come under pressure. As 2007 was the witness year for FDI to emergent countries and equity business is under pressure and corporate and project financing is already weakening (Dirk Willem te Velde, 2008).
 
Commercial Lending: In developed countries, even high potential banks are under pressure as they may not be capable to lend to the extent that they have done before. Investors are ever more factoring in the menace of some emerging market countries failure to pay their debt, subsequent to the financial collapse of Iceland. Investment would be limited in countries like Argentina, Greece, Iceland, Pakistan and Ukraine (Dirk Willem te Velde, 2008).
 
Aid: Because of weak fiscal and debt problems and positions, Aid budget is under pressure. Some reasons are there why the developed nations provide the aid budget to developing nations; this includes the desire to promote global public goods and the need to reduce poverty in developing nations (Dirk Willem te Velde, 2008).
 
Other Official Flow: Capital adequacy ratio (CAR) of financial institutions will be in some enormous pressure. On the other hand these have been comparatively high recently, so there is capacity for taking on additional risks (Dirk Willem te Velde, 2008).
 
Second, there could be financial spillovers for stock markets in promising markets. Since May 2008, across the globe all stock markets have slump down significantly whether it’s developed or developing countries (Dirk Willem te Velde, 2008).
 
1.2 Global Financial Crisis & Pakistan
 
The world is getting into the new complexity and troubles with three vital components: food, finance and fuel. These three factors have diverse geographical effects and origins on different segments of the globe and their inhabitants if very much rough. The developing temperament of the financial area has been a saving elegance for the Pakistan economy because the less developed association with the international markets have destined that the direct impact of the financial crisis has not been sensed by the Pakistani financial region (Butt, 2009).#p#分頁標題#e#
 
Pakistan, a delicate economy, has been facing both economic and political crisis which predate the global financial crisis. Key indicators of Pakistan economic crisis are poor performance of banking sector, trade deficit, balance of payment foreign exchange reserves, inflation, circular debt and political instability of stock markets. Pakistan is an exciting case since both are in crisis. The war on terror has turn out to be a killing sword overhead as the rate of suicide bombing is increasing day by day (Butt, 2009). GDP growth rate is a major gauge to access the strength of an economy; it was 9.0% in 2004-05 and turns in into 2.0% in 2008-09. Expected revenue per year spend by the Government of Pakistan is approximately $26 Billion, based on the expected revenues of approximately $20 Billion incurring a huge balance of payment (BOP) difference when the intact donor community was also going through financial disintegration (Saleem, 2009).
 
So far, the global financial crisis impact has been very limited but a few convincing threats still stay behind. The external region still faces various threats in the shape of a further fall in international demand. With regard to external financing, if existing circumstances in international markets persist, the government will have to raise dependence on funding from bilateral and multilateral agencies (Shahnaz, 2010).
 
Due to fiscal constraints, dealing with the crisis is difficult for Pakistan. Balance of payments flaws and faults enforced the government of Pakistan to route to an IMF standby arrangement that obligatory further environment on the budget. Subsidies on electricity, wheat, oil and fertilizer had to be phased out which in turn amplified the inflationary burden on consumers. At the federal and provincial levels there are some social safety grids; access to these has usually become further difficult (Shahnaz, 2010).
 
As part of monetary policy supervision, the SBP has also introduced a number of restructuring in the foreign exchange market. Prominently, the SBP determined to slowly but surely phase out the prerequisite of foreign exchange for importing oil. Currently for the import of furnace oil, the inter-bank market is assembling the foreign exchange demand (Shahnaz, 2010).
 
Pakistan’s banking sector is made up of 55 banks, which include four public sector banks, four specialized banks, twenty private commercial banks, seven foreign banks, five Islamic banks, eight development finance institutions and seven micro-finance banks (SBP, 2010).
 
According to the State Bank of Pakistan, Pakistan’s banking sector has remained extremely strong and elastic, despite facing pressures originating from weakening macroeconomic situation since late 2007. According to Fitch rating, the international credit rating agency with the Pakistani banking system more than the last four decades gradually progressed from a weak nationalized system to a little improved and dynamic private sector driven system. Liquidity is stretched, certainly, but that has more to do with serious government borrowing from the banking sector and little to do with the financial crisis (Saleem, 2009).#p#分頁標題#e#
 
1.2.2 Circular Debt
 
The circular debt in Pakistan has taken place because the government of Pakistan owes and is not capable to pay billions of rupees to independent power producers (IPPs) oil marketing companies (OMCs). The circular debt problem is critically impacting the process of the whole energy value chain. Due to low cash balances and liquidity as a consequence of the debt problem; the companies have to way out to short-term financing at high interest rates. Refineries are having troubles in opening LCs to import crude oil due to escalating payables and receivables. IPPs like HUBCO and KAPCO are also having difficulty purchasing oil and continuing operations (Saleem, 2009).
 
1.2.3 Karachi Stock Exchange (KSE)
 
Pakistan’s largest and most liquid exchange is Karachi stock exchange (KSE). In 2002, Business Week cited it as the ‘best-performing stock market in the world'. In Dec 2008 on the last trading day, KSE listed a total of 653 companies, with an accumulated market capitalization of Rs1.85 trillion ($23 billion). On 26th December 2007, the KSE-100 Index had its maximum close ever on at 14,814 points with a market capitalization of Rs4.57 trillion ($58 billion) and if we compare with 23rd January 2009, the KSE-100 Index stood at 4,929 points with a market capitalization of Rs1.58 trillion ($20 billion), a loss of over 65% from its peak point (KSE, 2009). Foreign investment in the KSE stands at around $500 million. During the 2006 and 2007 calendar years, overseas investors were aggressively investing in KSE-listed securities (SBP, 2008).
 
Source: Karachi Stock Exchange (KSE, 2009)
 
1.2.4 International Monetary Fund (IMF)
 
In November 2008, IMF agreed to bail out Pakistan through a Stand-By Arrangement (SBA) esteemed at $7.6 billion. There were two conditions that should be met: Karachi must slash its budgetary deficit from around 7% of GDP to 4.2% of GDP, and slightly raise taxation from 10% of GDP to 10.5% of GDP. Increase in taxation means it would further slowdown the economy and that would lead to unemployment greater than before. This additional unemployment could bring Pakistanis out into the streets and that would signal a full-scale political crisis. There is no contradicting that the country is in an appalling financial mess (Saleem, 2009). According to the IMF, the SBA package hangs around the real GDP growth to 3% in 2009 and added two to three million to end result unemployment (IMF, 2009).
 
1.3 Impact on Migrant Workers and Migration
 
Global financial crisis has led to a grim slowdown in worldwide economic growth and to extensive thrashing of jobs. Forecasting of ILO states that there might be a remarkable increase in unemployment globally and in the digits of poor workers; global unemployment levels mount from 18 million to 30 million personnel in 2009, and further 50 million if the circumstances continue to decline (ILO, 2009).#p#分頁標題#e#
 
1.3.1 Discrimination, Violence and Xenophobia against Migrant Workers
 
It is vital that migrant workforce do not become scapegoats of the existing crisis in progress. Past reports highlight a growth in xenophobic and racist attitudes towards migrants, mainly migrant workers. In Malaysia, these kinds of attitudes have provided sufficient justification for discrimination, and unlawful extinction of employment without payment of wages. Among others, similar tendency have been famous in Russia and Thailand and as well as in United States and the United Kingdom too. A Russian NGO states that around 113 migrants were killed during first ten months of 2008, double the rate of the preceding year (The Economist, 2009). In United Kingdom, a number of xenophobic objections have taken place together with a wildcat strike alongside employment of overseas labor (BBC News, 2009).
 
1.3.2 Migrant Workers and Job losses
 
Primarily the crisis in Europe and the United States may have disturbed skilled emigrant workers in the finance sector. Burden of retrenchments as a consequence of the global bend in economic activity are borne by the construction, manufacturing and services. These are also the sectors with high altitude of migrant employment. In the urbanized countries of Europe, North America and Arab region, manufacturing activity has fallen. Spain, Greece, Portugal and Italy have a comparatively high margin of migrant human resources engaged in construction so the economic downturn in these countries is consequently have an adverse impact on migrant employment (Azfar Khan, 2009).
 
In East Asia, where migrant workers are mainly working with manufacturing enterprises, the decline in global customer demand may have guided to huge downsizing. Services, and hotels and restaurants are sectors which are also unconstructively disturbed by the current crisis. While no specific statistics are obtainable on the real amount of job losses for migrant human resources and their problems, a variety of media reports advocate that they are inside the front of employment cuts (Azfar Khan, 2009).
 
1.3.3 Few Employment Opportunities
 
Future employment prospect for migrant workforce also appears to be falling. Several governments have given importance to their national workers by superiorly accommodating them. The governments of the United Kingdom and Australia together just declared the policy of reducing skilled foreign workers to guarantee jobs for local graduates. Under this plan, expectation is that 87,000 will return to their countries of origin under this plan (Azfar Khan, 2009).
 
1.3.4 Falling Remittances
 
Remittance flows are also on the wane after showing slight growth over the past few years. Some expect a climb in the number of migrant workforce in irregular status and propose that informal transfers may partially compensate for the fall in official remittances. Yet even a little fall in emigrants’ remittances is likely to have extensive consequences, particularly in environments where such transfers form a key fortification against poverty (Saleem, 2009).#p#分頁標題#e#
 
1.3.5 Worsening Conditions of work
 
Emigrant workforce may be enforced to agree to take lower wages and undergo inferior quality of working environment in an effort to keep hold of their employment. Emigrant workers, particularly women employees and those in doubted status are in the middle of the hardest hit and are uncovered during crisis circumstances (Juan Somavia, 2008).
 
During crisis, the main beliefs of equal conduct for emigrant workers and a rights-based approach to running labour immigration need support. Origin and destination countries should vehicle policies receptive to the requirements of all human resource that assured at least labour principles. Emigrant worker’s protection is a key course of action concern in the aftermath of job losses, steady with the upholding of their basic human and working rights (Azfar Khan, 2009).
 
2 Remittances
 
Remittances are the most tangible and visible benefits of labor migration. At the macro-level they bring in considered necessary foreign exchange and contribute to correcting balances on current financial records in countries of origin. In many countries, remittances signify a high proportion of GDP as they maintain demand and thus arouse economic activity then the employment is created as a result (Ibrahim Awad, 2009).
 
At the household-level, remittances can help in reducing the poverty and to human capital growth through expenditures on education and health care. This is noteworthy for development in countries of origin of migrant workforce. Drop in remittances is consequently troublesome for migrant workers, their families and their countries. It also bears highlight even if their total global worth is smaller than Foreign Direct Investment (FDI), remittances are better spread. They are the first basis of external financing for a great amount of developing countries (Ibrahim Awad, 2009).
 
The current crisis is likely to reduce possibly the growth and size of total remittances considerably as it would unconstructively affect both the size of the migrants’ residents and the amount remitted per capita. Migration is driven by the variation between the expected wage obtained in the destination country and the real wage received in the source country (Ibrahim Awad, 2009).
 
The current crisis would decrease wages in developed nations, squeezing the distinction in wages, and the level of migrant flows. But the migration reserve may also be affected as some migrants may lose their jobs, thus mounting the rate of return migration or the level of unemployed migrants. Moreover, the downturn may force even those who preserve their job to condense the amounts remitted, due for instance to a reduction in real wages (Ibrahim Awad, 2009).
 
Growing reliance on remittances will assist on the short term to sustain consumer spending as compared to long term which could increase consumer spending vulnerability to external events. On a regional basis, Pakistan receives a medium amount of remittances, with Bangladesh and India receiving 8.8% of GDP and 2.8% of GDP in remittances in 2006-07 respectively during the crisis (Media Eghbal, 2008).#p#分頁標題#e#
 
3 Workers’ Remittances and Capital Flows
 
Foreign Investment has been held back by an under pressure International Economic environment as it showed the decline of 47.5% throughout the year 2008-09 compared to the equivalent period of the previous year. A large amount of this reduction has come in the form of an outflow of private portfolio investment of US$ 1 billion. Investment from nations such as the United Kingdom, United States, Hong Kong and Singapore, which have been at the apex of the international crisis, has dropped significantly. Some Asian economies have observed a predictable fall in workers’ remittances because of the rise in the unemployment in advanced host economies. Though, workers’ remittances to Pakistan remained dynamic and unaffected by the crisis, totaling US$ 6.36 billion in July-April 2008-09 as compared to US$ 5.32 billion in the consequent period last year, thus displaying a rise of 19.5% (Mohammed, 2009).
 
During the first two months of the current 2010-2011 (July-August), remittances worth US$1.742 billion were flow back to home by Pakistani migrants residing abroad, showing an increase of US$198.86 million or 13% when evaluated with US$1.525 billion in the similar period preceding year (Daily Times, 2010).
 
Pakistan Remittance Initiative (PRI)
 
On 22nd August 2009, Pakistan Remittance Initiative (PRI) was commenced as a combined project of State Bank of Pakistan, Ministry of Overseas Pakistani’s and Ministry of Finance with the rationale of holding, economical, assists handy, quicker and well-organized flow of emigrants’ remittances into Pakistan. Among lots of steps that PRI is captivating to improve the flow of workers’ remittances are the visualizing, process and execution of a remittance hub for Pakistan. The hub amid will ensure that all the remittances are acknowledged, processed and disbursed in a appropriate and suitable manner so that the remittance hub will become the medium of choice for all migrant workers and remitters to send remittance transactions (PRI, 2009).
 
On behalf of the PRI, State Bank of Pakistan is the acquiring organization for this assignment. Every action of this assignment is being done by SBP for PRI and all situations to SBP in this announcement are planned to echo that same spirit (PRI, 2009).
 
“Global Financial Crisis and its Impact on Remittances in Pakistan”
 
4 Significance of the Study
 
This study helped the researcher expand his horizon and give his insight into Remittances. It will also increase his knowledge regarding financial crisis impact on remittances in Pakistan and how theory can be applied as solution.
 
This research paper will guide the Pakistan Remittance Initiative to focus more and to take reasonable actions against concerning transparency and consumer protection, payment system infrastructure, legal and regulatory environment, market structure and competition, governance and risk management and Altruism. In general, local remittance companies of similar characteristics can also get some insight into the problem areas that might surface later within their organizations and be proactive at handling them .This study will be significantly an important document for general reading regarding the subject as there is no research material available on financial crisis impact on remittances in Pakistan.#p#分頁標題#e#
 
Also, it would provide an opportunity for Financial Institution Division and Centralized Operations Divisions of the Banks to match the theory with practices.
 
The scope of the research is limited to the Pakistan Remittance Initiative (PRI) and State Bank of Pakistan (SBP) head office and covers the current decade financial and economical data. 
 
Certain assumptions have been taken in this study which may change in the future. These include factors like economic and political stability, government’s lack of interference, and the quality criteria that have been used.