Review of Literature
The global situation:
The global financial crises has severely hurt global aggregate demand, decimated liquidity in theinternational capital markets, and reduced investor confidence. Consequently, world trade,investment and industrial production fell sharply from the last quarter of 2008. Thesedevelopments adversely impacted social indicators globally, as unemployment is on rise and poverty is likely to increase in developing economies. Indeed, falling demand for emerging economies exports directly translated into slowing GDPgrowth. This impact was heightened by the uncertainty (and increasing risk aversion) ininternational credit markets. The countries with substantial macroeconomic imbalances were particularly badly hit, as the access to international capital flows was abruptly curtailed, and their governments were often not in a position to initiate counter-cyclical fiscal or monetary policies.
Current Scenario of Pakistan
According to the Statistics Division, in September 2009, exports rose 2.62 per cent to $1.52 billion and imports fell 4.31 per cent to $2.42 billion over previous month. A reduced tradedeficit is a very encouraging sign for the country which is struggling to safeguard its economyfrom external shocks as a result of current account deficit, a factor that has disturbed thecountry’s financial balance sheet for the last couple of years.The FBS data show that trade deficit during September 2009 narrowed by 55.9 per cent over September 2008. In the first quarter (July-September) of fiscal year 2009-10, the trade deficitdropped by 44.74 per cent (or $2.50 billion) to $3.09 billion compared to $5.59 billion in thecorresponding period of last year. Imports stood at $7.58 billion during the period under reviewwhile exports totaled $4.49 billion. During the same period of last fiscal, imports stood at $10.81 billion and exports $5.21 billion. That depicted a 29.85 per cent decline in imports and 13.86 per cent fall in exports.During FY09, exports declined by 6.0 percent against commendable increase of 18.2 percent inthe previous year. A large part of this fall stemmed from contraction in textile exports amid