The year 2008 saw one of the biggest financial crises of Pakistan’s history. Consider for example, that this was the first time that the stock market had to be frozen altogether since the magnitude of the plunge it was seeing day after day was so large it could have wiped out the diminishing foreign exchange reserves of the country. Asset management funds were frozen and a run on the banks had actually begun, one of our economy’s big untold stories.
On top of that, the newly elected government had to eliminate fuel subsidies in one go, causing a massive spike in the price of fuel, and to jack-up power tariffs steeply. It had to undertake a sharp devaluation of the rupee, and watch GDP growth rate crash to 1.7 per cent as public spending all but dried up. A massive circular debt overhang, coupled with almost Rs700bn of borrowing from the State Bank that had to be retired (remember, the economy was less than half the size back then compared to today, so Rs700bn was a lot more money than it is today), and oil prices shot up to $147 per barrel at the peak of history’s biggest oil price bubble.
