It was destined to grow as big as it did. The trillion dollar shock and awe rescue package is very much the second round of bailouts after the initial one a year and half ago back when Lehmann Brothers was helped out of deep trouble.
Whats symbolic about this bailout is the rapid progression from rescuing corporate entities and small economies to rescuing large economic zones of such significance as the European Union. This is the biggest bailout package ever since G20 injected money to pump oxygen in the global economy which was finding it hard to breath a couple of years earlier.
Global markets praised the decision as a positive development, believing that economies will be out of the rut at least in the short run. In essence, this bailout package will work as a vaccine aimed at preventing fiscal pox to spread into other economies.
European stock markets and global commodity markets dipped the very next day of surging sharply on the rescue package, which indicates a cause of concern over sustenance of the bailout package.
For Pakistan - this may have a bitter-sweet impact on the overall economy.
On the positive side, it could arrest a big potential fall in Pakistans export to EU; which happens to have nearly a quarter of share in the export chunk. Not that exports would increase by virtue of this package, but it would still be good enough to maintain the existing demand.
Moreover, noticeable improvements may also be seen in FDI and PI accounts, since Western European countries contributed 20 percent towards total investments during the last fiscal year.
On the flipside, improvement in global economy might act as an adversary for Pakistans economy. Unfortunately, Pakistan being a net importing country will have to face the music of rising commodity prices, primarily, oil, coal, steel etc.
Nothing worries Pakistans economic managers more than the oil price increase. Opec officials see the oil price to go beyond the $85/bbl mark in the near future following the rescue package. If that is the case, a round of high inflation seems next in line - rupee depreciation and a higher import bill are others on the list.
All the while, despite massive EU bailout package, market participants still see this as a weak measure that will only provide temporary relief to the debt trapped economies rather than a pill for permanent cure. It could be disastrous for Pakistan if the shock and awe package ends up being short lived.
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