A few days before the release of World Bank’s flagship ‘Global Economic Prospects’ (GEP) January 2023 report recently, the managing director (MD) of International Monetary Fund (IMF) pointed towards a very difficult challenging global economic outlook for the current year; in turn, highlighting the rather obvious in the shape of another recession likely in the current year, coming shockingly so quickly at the back of global recessionary wave that came in the first year of the Covid pandemic.
A recent Financial Times (FT) article ‘Recession will hit a third of the world this year, IMF chief warns’ highlighted MD, Kristalina Georgieva’s concerns as ‘A third of the global economy will be hit by recession this year, the head of the IMF has said, as she warned that the world faces a “tougher” year in 2023 than the previous 12 months.
The US, EU and China are all slowing simultaneously, said IMF managing director Kristalina Georgieva. … Her comments suggest the IMF is likely to soon cut its economic forecasts for 2023 again; it usually publishes updated projections during the World Economic Forum in Davos, Switzerland, which takes place later this month.’
At the same time, World Bank in its January 2023 GEP report downgraded its June 2022 global economic growth projections for 2023 and 2024 by 1.3 percent and 0.3 percent to 1.7 percent and 2.7 percent, respectively. Moreover, growth projections for advanced economies, emerging and developing economies have also been revised downward by World Bank.
Weak global economic outlook is indeed a reflection of serious economic challenges that are being faced for a number of years now, and since the fundamental sources in the shape of climate change crisis, and the neoliberal assault have not been properly checked up till now, it is indeed important that a strong, unified, and wholesome environmental and economic recovery plan is put in place. Perhaps the second Bretton Woods moment has arrived.
Martin Wolf in his recent FT published article ‘The threat of a lost decade in development’ pointed out the need for a concerted effort so as to avoid global economy end up seeing this decade as a lost one for a number of vulnerable segments, especially for developing countries, who are also facing serious debt distress.
Discussing the GEP report, he indicated in this regard: ‘The shocks of the past three years have hit all countries, but they have hit emerging and developing countries particularly hard. As a result, according to Global Economic Prospects 2023, just out from the World Bank, the convergence of average incomes between poor and rich countries has stalled.
Worse, it might not soon return, given the damage already done and likely to persist in the years ahead. By the end of 2024, gross domestic product levels in emerging and developing economies are forecast to be 6 per cent below those expected before the pandemic.… These losses, with all they mean for the plight of the world’s most vulnerable people, show the impact of the pandemic, the war in Ukraine, the rise in energy and food prices, the surge in inflation and the sharp tightening of monetary policy in high-income countries, especially the US, and consequent rise in the value of the dollar.
An obvious danger now is that of waves of defaults in over-indebted developing countries. Taken together, these shocks will cause long-lasting effects, perhaps lost decades, in many vulnerable places.’
In the particular case of Pakistan, World Bank’s projections in its GEP report for economic growth rates for fiscal years 2022/23, and 2023/24 at a meager 2.0 percent and 3.2 percent, respectively, indeed present a difficult economic outlook.
Hence, when the country needed to grow at a faster pace to meaningfully mitigate the economic consequences of the recession-causing pandemic, and acute inflation as a result of aggregate supply shock, weak growth performance, along with serious debt distress and high current account deficit, will further squeeze fiscal space to make the needed development and welfare expenditures; along with keeping both debt default risk and imported inflation component on the higher side.
A healthy mix of non-neoliberal reform agenda and well-rationalized stabilization policies at home on the lines of non-austerity and counter-cyclicality, and overall a cautious monetary tightening approach globally, along with multilateral and rich, advanced bilaterals coming together to lead the way on debt restructuring, climate finance, and IMF’s enhanced special drawing rights (SDR) allocation – both one time, and an annual climate-related SDR issuance for climate-vulnerable developing countries, along with cancellation of IMF ‘surcharge’ policy, among other important plans for instance in the ‘Bridgetown Initiative’, and otherwise – are important policy initiatives that are needed to deal with serious economic challenges being faced globally, making it difficult to deal with political instability consequences that these economic challenges have brought, in many developing countries in particular.
Copyright Business Recorder, 2023
The writer holds a PhD in Economics degree from the University of Barcelona, and has previously worked at the International Monetary Fund. His contact on ‘X’ (formerly ‘Twitter’) is @omerjaved7
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