Capitalism and Interest Based financial System are the root causes of world financial system’s failure. It is going to convert into economic crisis. If it is not going to handle properly, its results may be more adverse than Great Depression. Pakistan was in crisis right from the beginning but financial crisis is increasing its rate of knots.

Financial crisis is one of the major challenges of 21st century. It is not only parting negative impact on US but several rich countries’ financial systems are also trembling under its weight. Economies of major world including Pakistan are at high level of risk. This crisis is also pointing fingers on the capitalistic companies and banks, which somehow are bigger than many countries.

Pakistan was in crisis from the beginning of year 2007, but financial crisis triggered this crisis and situation is going to worst. Pakistan is passing from crucial phase of its life. Crisis in Pakistan was started when former President Pervez Musharraf suspended Supreme Court Chief Justice. Later on Lal Masjid incident took place which throughout Pakistan created huge tension because after this incident chain of suicide attacks started in the country, which has not been ended as yet.

In large part due to fuel subsidies and other economic obligations, Pakistan’s budget deficit of $21 billion is the highest in a decade, and the current account deficit is 8.4 percent of GDP. In all of Asia, Pakistan has the highest interest rates, least valuable currency, and riskiest financial obligations. As a result, Pakistani government debt is considered one of the riskiest in the world.

Pakistan’s currency, the rupee, has lost 20 percent against the falling dollar and is now near record lows. The Karachi Stock Exchange—Pakistan’s oldest and largest stock exchange—has lost 40 percent of its value since April 2008. Just last August, the KSE put a floor on the index to keep shares from falling even further.

Pakistan foreign currency reserves have dropped significantly due to the unstable political and security situation. In less than a year, Pakistan’s foreign reserves have dropped from an all-time high of $14 billion last November to just under $6 billion today.

Pakistan has taken loan from International Monetary Fund (IMF) on harsh terms and conditions to meet crisis. But financial crisis will be adverse due to this aid because terms are directing Pakistan, not to support their financial sector.

Aid from USA and foreign remittance are one of the main contributions towards current account balance of Pakistan. But after the financial crisis, American aid stopped and foreign remittances to Pakistan also showing steep decline.

All the bailouts and nationalizations are not the permanent solutions to this financial crunch. It may be possible that we will get rid of this crisis in few months or few years, but it will again come and hit the economies and challenge the financial systems of the world. We have to address the roots of this crisis. Basically all the financial systems of the world revolve around “Capitalism” and “Interest”, which will somehow always invite such big recessions in the days to come.

The basic economic statistics paint a dire picture. Two-thirds of the Pakistani population lives on less than $2 a day, with one-third of the population living below the poverty line. While the Pakistani economy expanded 5.8 percent in the last fiscal year, this rate of economic growth was the slowest since 2003 and is expected to fall to 4.6 percent this year. But the benefits of this economic growth have not reached the vast majority of Pakistanis.

The newly elected government faces interlinked challenges: tackling emboldened militant groups and terrorist organizations, advancing political reform, and stabilizing the economy. If Pakistan’s economy experiences further collapse, the government could lose further support of the people.

About the Author:

Farhan Butt (Student of MBA Iqra University)