2008 - The year that was

Pakistan's economy has undergone multiple shocks like political battle, energy shortage, unsavoury law & order on the domestic front and soaring oil and food prices and global financial crunch on external sides resuling in its worst performance throughout 2008.
However, economist said that overall, the economy remained resilient compared to the severity of the shocks and believed the damage is irreparable in the short run. That politics had become irrelevant was a major punch line in 2007 and the early part of 2008.
The year started with assassination of former Prime Minister Benazir Bhutto on December 27, 2007 and post assassination riots badly hurt the country's economy and economic activities were completely halted about a week with a loss of approx. Rs 50 billion.
Delays in general elections due to assassination of Benazir Bhutto destabilised the equity market temporarily. However peaceful elections in February 2008 raised hopes of a smooth transfer of power to the coalition government led by the two largest political parties Pakistan People Party and Pakistan Muslim League-N.
The equity market was the major affected sector of the economy, as worsening domestic politics and economic challenges started to reflect in stocks, resulted in an index decline of over 59 percent, which is still on decline and regulators are trying to improve the situation.
Due to the poor law and order situation, shortage of energy and high interest rate, Large Scale Manufacturing (LSM) also presented negative growth and no major investment has been witnessed in this sector, which further hit the economic performance of the country.
Rising local current expenditures and imports also hurt the fiscal and current account deficit. To meet fiscal deficit government borrowed some Rs 500 billion from central bank during the year 2008. Meanwhile, rising current account deficit and slow foreign inflows forced the government to utilise over 10 billion dollar, from its foreign reserves.
However, during the year 2008, after 5 years, Pakistan was once again compelled to rejoin IMF programe to avoid default and build its reserves. The depleting reserves and smuggling of dollar badly damage the value of Pak rupee, which has also lost over 30 percent of its value during the year.
During the year government has also adjusted the fiscal subsidies to zero level by the end of 2008 on one of the conditions of IMF; as a result petrol prices in domestic market touched peak level of Rs 86 per liter disturbing all the sectors of economy.
During the year banking industry faced huge liquidity crunch and depositors draw billion of rupees from banks. SBP announced a bailout package of Rs 270 billion for banks to provide an additional liquidity in the current financial crisis.
The worsening law and order situation keeps the investors away from Pakistan and exporters were also forced to hold their business meeting in Dubai, which directly hit their costs and export. Ahead of deteriorating law and order situation International Islamic Financial Services Board (IFSB) shifted its 13th council meeting to Dubai from Pakistan.
However, despite law and order situation foreign entrepreneurs invested in banking sector and Royal Bank of Scotland acquire ABN Amro Pakistan, while several other mergers and acquisitions were also witnessed in the banking sector due to the SBP's banking reform. Barclays and Samba banks were also some new entry in country's banking system.
The retirement of Governor SBP Dr Shamsad Akhtar after completing three years term was also an important change at the year end and Saleem Raza appointed new governor for the next three years from January 1, 2009 to December 31,2011.
Going forward, economists believe the IMF program has diluted the risk of sovereign default. Additionally, global commodity prices meltdown and favourable agricultural output for FY09 is expected to bring stability and resilience to the economy.