A couple of weeks back, Morocco hosted the annual meetings of the International Monetary Fund (IMF), sort of the global high table of the economic powers. The worrying performance of the global economy only made this summit that much more important. As expected, the IMF issued a veiled warning on the world economy and this, at the time not even taking into account the rising oil & gold prices and afresh supply chain bottlenecks arising largely due to the sad developments in Palestine. Its assessment opined that the global economy continues to recover from the pandemic, Russia’s invasion of Ukraine, and the cost-of-living crisis. However, in retrospect, the resilience has been remarkable. Despite war, energy supply challenges, supply-chain disruptions in the food markets and unprecedented monetary tightening to combat decades-high inflation, fortunately economic activity has slowed but not stalled. Even so, growth remains slow and uneven, with widening divergences, still the global economy keeps limping along, if not sprinting in certain fields. The investors outlook continues to be conservative with the IMF projecting that the world economic growth will slow from 3.5% in 2022 to 3% this year and 2.9%. next year, naturally remaining much below the historical average. The good news in the IMF prognosis though comes from the inflation predictor, where it sees the annual rate of inflation - which caused a serious cost of living crisis across the world - to continue to decelerate. It dropped from 9.2% in 2022, to 5.9% this year and is forecast to be lower at 4.8% in 2024. Albeit, Core inflation, which excludes food and energy prices, is projected to decline rather gradually, to still hover around the 4.5% mark even next year in 2024, pointing to the reality that most developing countries aren’t likely to return to pre-2022 inflation targets until 2025 or beyond with Pakistan being amongst the likely countries where inflation could be stubborn and persistent!
On the macroeconomic front its report while commenting on relatively stabilising conditions, nevertheless warned of the fallout from the consequences of new geopolitical risks—especially the ongoing decoupling between China and the West. Now the developments in Palestine are exacerbating such risks. “De-risking strategies by China and the United States and other OECD countries that aim to re-shore production domestically or friend-shore away from one another can result in a significant drag on growth around the world even when assuming no new trade restrictions on third or neutral countries, especially in Asia.
In short the world is steadily reversing the gains from globalisation, which despite its shortcomings, lifted many countries out of poverty.” The problem is that with the worsening fault line on global growth, the losers will not be one or two countries, but by and large everyone loses out due to fast brewing geo-economic fragmentation, leaving the global growth prospects once again in tatters. Countries like Pakistan that are significantly dependent on both sides and have a compromised domestic economic base can end up being the worst sufferers in such a cross fire. Meaning, similar to economic integration, the impact of geo-economic fragmentation will be felt primarily by the relatively economically weaker countries due to abruptly changing patterns of trade, technology, labour, capital, and the provision of global public goods. These channels interact within and across national borders as well as geographic blocs making it difficult for countries to make tough choices, especially when they don’t have their own two feet to stand on. Consequently, we have to acknowledge the emergence of a multipolar world with the presence of a few dominant players. While United States will continue to be the single most influential presence, there are others like China who will seek to challenge them, either individually or as the axis of the like-minded. The existing multilateral framework, evolved in the aftermath of the second World War may suddenly not be relevant anymore.
So, what exactly does it mean for Pakistan? The answers may not be very simple, but foremost and important, we have to realise that the general operating umbrella of the WTO that in many ways gave some sort of cover for needy countries like ours who need to play both sides, has probably been either rendered ineffective or it is no longer able to play an effective shield role in the aftermath of the slug fest between the global majors. in such a case the natural way forward for us should be: Both, changes in our current bilateral free trade agreements to suit our altered requirements and in finding economic alliances cum partnerships with like-minded and complementing countries. Additionally, reduced trade-led income convergence across countries will have significant welfare costs for low-income countries like ours, something that can in-turn invariably manifest itself in a push towards an aggregate effect towards lowering living standards - A development, which if not checked in a timely fashion can more likely than not, result in large scale social unrest. The trouble is that amidst all these fast emerging new economic challenges facing the world in general and Pakistan in particular, there seems to be a leadership vacuum at home.
And if we are to successfully steer our economic ship out of these crises in the coming months, not only will this void have to be addressed, but more importantly a slogan will also have to be effectively launched by the new leadership on a broader consensus amongst all stakeholders in assembling an economic team that is acceptable to everyone and at the same time has the capacity and credibility to undertake prudent policymaking and its implementation.