Risks of spread of contagion associated with US and UK’s credit crisis and liquidity crunch have compounded as the financial and economic losses magnify and thwart global financial stability and economic growth prospects. Combined with record-high international commodity prices (in particular oil and food prices) global inflationary risks have intensified.
Emerging markets like Pakistan, which were thus far insulated mainly due to low exposure to the subprime paper, are likely to be impacted by the second round effects of the financial market turmoil which are now visible by way of sluggish world economic growth as US downturn is setting in.