International Financial Crisis and reasons
The financial crisis of 2007–2008, also known as the Global Financial Crisis and 2008 financial crisis, is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s.
Many causes for the financial crisis have been suggested, with varying weight assigned by experts. The U.S. Senate's Levin–Coburn Report asserted that the crisis happened because of:
1-High risk
2 Complex financial products
3-Undisclosed conflicts of interest
4-The failure of regulators
5-The credit rating agencies
6-The market itself to rein in the excesses of Wall Street
7-Weak and fraudulent underwriting practices
8-Deregulation
9-Predatory lending
10-Increased debt burden or over-leveraging
11-Boom and collapse of the shadow banking system
12-Commodities boom

Financial crisis in Pakistan and Reasons
1-One of the immediate causes is Political instability due to Musharaf’s position as president, delay in restoring judiciary and resultantly withdrawal of PML (N) from the alliance leaving behind ‘dead’ ministry of finance. In contrast the present government is not showing strong will to cope with the situation. Though some Positive Measures. To end Load Shedding till 14th August, 2009, Benazir income Scheme programmed, Distribution of Land in Sindh, tight Tariff System against luxury items

2-Suicide attacks in the industrial cities-fear among people, disinvestment and maximum outflow of capital, especially in Dubai stock exchange crash.

3-Foreign investment in 2007 was $ 700,63.5 million but in 2008 only $329 million.

4-Soaring oil prices due to increased demand from growing economics of China and India, Iraq crisis, Iran holding its oil export, devaluation of Dollar after Iraq invasion and limited supply by OPEC, refusal of Saudi Arabia to enhance its oil supply. More population to use energy from to $ 134/ barrel in 2008.

5-Food crisis oil prices, low agriculture yield due to heavy cost of production (seeds, pesticides, water and fertilizers), unavailability of small loans to small farmers, power shortage, fast increasing of population, poor governance in managing the food and to stop its smuggling to Afghanistan. Central Asia and Iran which stored big food stocks due to American war. World Food Crisis encouraged its smuggling. Less attention by the governments to live stock, dairy stock, increased circulation of paper currency. Big share of ‘Middle Man’.

6-World Food Crisis: population explosion, emergence of middle class with more food consumption in India and China. Low yield in India. Earthquake in China, increase in world oil prices.

7-Energy Crisis

8-Inflation means price hike, huge war between demand and supply, too many rupees chasing too few things. More supply of Money due to; AID after 9/11. Foreign Remittances due to over seas Pakistanis, growth in banking sector and investment in real estate. Poor supply of goods, food items due to low yield. Inflation due to rise in oil prices, food, removal of food subsidy, devaluation of Rupee, higher import price, Government borrowing from State Bank Rs . 544 billion. Resultantly increase in wage-price. Delay in monetary tightening by the State Bank. Government claims 25% while actual is 32% while food inflation is 45%

9-Deceleration of growth in manufacturing: energy crisis. Terrorist incidents. High interest rates by SBP discouraged Private investment. High imports and low exports. 75 industrial units in Karachi and 85 in Faisalabad were closed due to energy crisis.

10-Fiscal deficit: 6.5% of GDP, target was 4%. Due to slippage in revenue and expenditure- Dismal Growth; lower Tax collection. Heavy subsidy on oil effected current expenditure, increased in development expenditure. Decline external financing flows, so the government borrowed from SBP which caused monetary expansion, continuous Defense Budget.

11-Poor tax system:

Only salaried persons pay regular tax, while the major sectors find safe path through corruption. Agriculture tax cannot be imposed due to feudal in policy making.

12-Unilateral growth:

Production was not encouraged by the previous government, rather Pakistan was made a consumer society, services sector was enhanced which created less jobs.

13-China factor:

Cheaper Chinese products destroyed our industry thus created unemployment, more burdens on economy.

14-Illiterate labor: is less productive

15-Defence budget at the expense of economic development

16-Regional conflicts has marred the gas pipelines and usage of Gwadar.

17-Overpopulation at the rate of 1.9% is swallowing the resources

18-IMF loans hinder development and put burden on the masses.

* According to different Analysts of the Pakistan
Crisis happened because of: * Acute energy crisis * High rate of interest * High cost of production * Inflation * Deteriorating law and order situation * Poor industrial infrastructure * Decline in FDI and joint venture with foreign investors * A bewildering stock market * A perceptible slowdown in the manufacturing and services sectors * Terrorism * Lack of good governance The other international elements include global recession, credit crisis, weak economic prospects of the EU, USA, and limited access to international markets and specific countries.
Pakistan’s economic downturn is due to its internal economic reasons instead of direct impact of financial crisis 2008. Pakistan’s banking sector
Pakistan’s banking sector is made up of 55 banks, which include thirty two commercial banks, four specialized banks, six Islamic banks, seven development financial institutions and six micro-finance banks.
According to the 2007-08 Financial Stability Review from the State Bank of Pakistan (SBP), 'Pakistan’s banking sector has remained remarkably strong and resilient, despite facing pressures emanating from weakening macroeconomic environment [sic] since late 2007'.
According to Fitch Ratings, the international credit rating agency with head offices in New York and London, 'the Pakistani banking system has, over the last decade, gradually evolved from a weak state-owned system to a slightly healthier and active private sector driven system'.
The data from the banking sector for the final quarter of 2008 confirms a slowdown after a multi-year growth pattern. In October 2008, total deposits fell from Rs3.77 trillion in September to Rs3.67 trillion. Provisions for losses over the same period went up from Rs173 billion in September to Rs178.9 billion in October. At the same time, the SBP has jacked up interest rates: the 3-month Treasury bill auction saw a jump from 9.09% in January 2008 to 14% in January 2009, and bank lending rates are now as high as 20%.
Overall, Pakistan’s banking sector has not been as prone to external shocks as have been banks in Europe. Liquidity is tight, certainly, but that has little to do with the global financial crisis and more to do with heavy government borrowing from the banking sector, and thus tight liquidity and the ‘crowding out’ of the private sector.

Macroeconomic problems of Pakistan
Implementation of difficult policy choices, and not their diagnosis, is the real problem of economic management in Pakistan. The main macro-economic problems of Pakistan are well known to even ordinary citizens and well-articulated by professionals. These are: slow and erratic economic growth, persistently high inflation, extreme poverty of the bulk of the population coexisting with prosperity of a few, deep and rising debt burden, and huge budget deficit.
On the face of it, these seem to be problems emanating from diverse sources but in reality these are mainly the product of one factor, and that is poor governance giving birth to mismanagement of public finances which, in turn, has become the mother of all economic ills. It should be clear by now that Pakistan cannot dig itself out of its deep rooted budgetary problems by continuous reliance on printing of notes by SBP in excess of country’s capacity for their non-inflationary absorption and/or by continuous accumulation of expensive and ineffectively used external debt by the government. Continuation of such a course will intensify inflationary pressures, plunge the country in a steeper hole of debt trap, accentuate structural problems, impede long term economic development and socially and politically destabilize the country in a big way. Pakistan desperately needs a clean break from this failed approach, and implementation of policies to place the budget on sound footing is the first order of business for Pakistan.
Budgetary measures should include mobilization of additional revenue resources, severe curtailment of inessential and unproductive government expenditure, and honest and efficient use of development expenditure to facilitate economic development and improve economic wellbeing of the majority of the population. In addition, SBP should implement a prudent monetary policy that is not hostage to the financing needs of the government. The subsequent section of this paper is devoted to an outline of the direction in which fiscal policy, and its twin, monetary policy, must move in actual practice, with only a passing reference to some of the other pressing policy issues. IMF and World Bank
It is worthwhile to note that IMF and World Bank, which have been involved with the economy more often than not during this entire period, have also exhibited no better pattern in their performance in Pakistan. While diagnosing economic problems in a professional manner, and producing some good analysis of several aspects of the economy of Pakistan, they went along with short term economic policy patchwork undertaken by successive governments, without a long term strategy for economic and social development. In particular, they easily accommodated lapses in policy promises and commitments, particularly in the budgetary and governance areas, mainly with a view to supporting and sustaining even inadequate and collapsing programs to avert a foreign debt default by Pakistan that could engulf them also in a crisis.
Endorsement by international financial institutions of inadequate short term policies, and their willingness to assist the authorities in obtaining additional foreign loans based on such policies, provided life support to various governments, and enabled them to remain current in repayment of foreign debt, but landed the country in deeper long term debt difficulties. Moreover, attitude, and nature and severity of conditionality of international financial institutions fluctuated from time to time depending on the attitude and influence of their largest shareholders, who, in turn, were driven by their own changing security and strategic national considerations. Most of the bilateral and multilateral loan inflows arranged under programs with IMF and World Bank dissipated in foreign debt repayments, technical assistance for various purposes, training programs for manpower abroad, consultancy fees, hiring of national and international experts at expensive rates and leakages through pilferage and corruption. There is no evidence on the ground to show that the large amount of accumulated foreign debt of the country was used productively in building up of the base for export sector, agricultural and industrial development or viable infrastructure projects that could help generate foreign exchange for future repayment of foreign debt. As a result, increasing foreign debt servicing liability, without a corresponding expansion in foreign exchange earning capacity, has entrapped the country in a vicious circle of more external borrowing and more foreign debt servicing. These multilateral institutions, if they are serious about economic welfare of Pakistan, should change their approach and make a genuine and bold effort to reduce foreign debt burden of the country through concessional rescheduling, and restructuring and write offs, rather than keeping governments afloat through additional lending that enables foreign creditors to continue to get paid on time. For this change to take place in IFIs, the government and people of Pakistan need to first decide and demonstrate determination to move on a self-sustaining, and self-respecting, path of economic and social development. Simultaneously, and in the context of a comprehensive strategy to reduce foreign debt burden, these institutions should help the Government to implement long term structural reforms in several areas to increase domestic saving rate to a level that can finance a large component of domestic investment requirements. A continuation of the past approach of indiscriminate bilateral and multilateral borrowing, and its ineffective use by Pakistan government, is bound to land the country in a much more serious balance of payment and economic crisis, from which it will find increasingly more difficult to recover.

http://www.cssforum.com.pk/css-compulsory-subjects/essay/essays/22871-economic-crisis-pakistan.html http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/business/19-Apr-2009/Pakistan-less-affected-by-financial-crisis-Raza http://download-reports.blogspot.com/2011/02/financial-crisis-2008-and-its-impact-on.html