‘Turbulent times’

EDITORIAL: “We are certainly living in turbulent times,” said Gita Gopinath, the IMF’s (International Monetary Fund’s) number-two official, as uncertainty about the pandemic, inflation, and monetary tightening in most countries forced the Fund to lower its global growth forecast for the current year. It now projects the global economy to grow at 4.4 percent this year, 0.5 percentage points less than previously forecast, mainly because of its downgrades for the world’s two biggest economies.

The US growth outlook has been cut by 1.2 percentage points because of President Biden’s failure to pass his “special” social and climate spending package, persistent supply shortages, and uncertainty about how often and how much the Federal Reserve Bank is going to raise interest rates. And China’s forecast has been downgraded by 0.8 percentage points because of disruptions caused by its zero-tolerance Covid-19 policy as well as deep financial trauma in its property sector.

The Russia-Nato standoff over Ukraine has also worsened at the most inopportune time possible, rattling financial markets — sending oil above $90 per barrel for the first time since 2014 — and threatening to keep commodity prices and international inflation elevated for at least the foreseeable future. Yet while these factors could slow things down this year for the big boys of the international economy, they could also combine to deliver the kiss of death to poor and under-developed countries as they struggle to stay above water.

The IMF has also acknowledged that while most countries are recovering from the effects of the pandemic, there is a wide divergence in the pace of recoveries between rich and poor countries. Most advanced economies are expected to return to pre-pandemic levels of output this year, it said, while emerging markets and developing countries continue to face sizable losses.

These losses have also set back progress in poverty reduction by many years with several million more people living in extreme poverty just because of the pandemic at the moment. The Fund has also made the shocking disclosure that 60 percent of low-income countries are already in or at high risk of debt distress, while urging the Group of 20 (G20) to speed up debt restructuring and even suspend debt service payments as long as restructuring negotiations go on.

Pakistan has been at the forefront of countries calling for just such measures to help the weaker countries in the world make it through the pandemic in one piece. The need to help with third-world debt only increases in light of warnings that the pandemic might not be over anytime soon, and there could be more variants of Covid-19 down the road which could cause even more lockdowns, supply-side bottlenecks, etc.

There is also the small detail that most, if not all, countries will not be able to throw any more stimulus packages into markets in case of more lockdowns because, unlike previous waves, this time there is already excess money everywhere and interest rates are on their way up. Initially, financial markets didn’t think too much of the Omicron variant.

The going thesis was that while it definitely spreads much faster than other variants, it is also far less deadly; which could even mean that it is fast-forwarding the journey to herd immunity all around.

But now, considering how it has filled hospitals everywhere once again, forcing partial shutdowns in certain places, it can at least be counted on to put the spanner in the global recovery for another few quarters at the very least. And these will perhaps be the most crucial quarters since this crisis began because there aren’t going to be too many rescue packages this time. The IMF has issued its warning in time and all countries, especially poor ones with few resources, should adjust accordingly.

Copyright Business Recorder, 2022