EDITORIAL: The global economy is on track to register a ‘woeful’ decade of growth, so maintained the World Bank (WB) Chief Economist, unless governments act to accelerate investment and strengthen policy frameworks.
This conclusion was drawn from the decline in global growth rate from 2.6 percent in 2023 to 2.4 percent in the current year, which is 0.75 percentage points lower than the growth rate in the 2010s.
The global economic decline can be attributed to two major non-economic factors notably geopolitical fragmentation and the looming elections in several Western countries.
The fragmentation began with the Russia-Ukraine war but the pace has accelerated with the ongoing slaughter of civilian Palestinians in Gaza and the West Bank by Israel.
These two ongoing conflicts have not only compromised the supply chain of grain globally but also impacted on the price of oil and products – two commodities that have raised the food and energy prices at a global level but more particularly in developing countries of the world. In this context, it is rather baffling as to how accelerating investment and strengthening policy frameworks particularly at a national level would deliver the dividends that are envisaged by World Bank’s Chief Economist.
What is critical and patently evident is to resolve these two conflicts on an emergent basis and while the cost to human life in both these instances escalates every day, yet the international community, particularly the more influential nations, appear to have limited themselves to verbal exhortations with no visible proactive effort to end them.
The other factor relates to national politics and in 2024 US presidential elections, the UK general elections, European Union elections as well as legislative elections in several European countries, including Austria, Belgium, Portugal, and Croatia. The incumbents’ narrative appears to be to maintain the status quo in foreign policy, including on the two ongoing conflicts noted above, which has led to a stalemate.
This is further complicated by the two largest economies of the world – the United States and China – circling the wagons against each other, suspicious of each other’s motives ranging from trade to security to geopolitical considerations particularly with respect to Taiwan.
The WB Chief Economist further argued that “without a course correction, the 2020s will go down as a decade of wasted opportunity.”
Here too, we may differ as Western economies are suffering from high inflation, due to higher price of grain and oil, requiring higher subsidies that have widened their debt to Gross Domestic Product ratios.
In the first quarter of 2023 13 out of 27 European member states reported a higher than the reference value of 60 percent debt to GDP ratio, including Germany at 71 percent, while six member states recorded debt to GDP higher than 100 percent (Greece, Italy, France, Spain Portugal, Belgium).
Be that as it may, global foreign direct investment (FDI) inflows rebounded to 727 billion dollars in the first half of 2023 but this rebound was 30 percent below the levels recorded in 2022 with much of the increase in the first quarter of 2023 dropping down by 44 percent in the second quarter.
The major recipients were the US, China, the UK, the Netherlands, Singapore and Hong Kong (with the US and China also amongst the top countries with FDI outflows).
Pakistan currently is focused on attracting FDI as a means to resolve the prevailing economic impasse; however, it must be acknowledged that competition will be with developed countries with stable political and economic policies/systems.
In this context, the perception may well be that more incentives are required to attract FDI; however, we would urge the decision-makers to ensure that these incentives are vetted by legal experts who must prioritise protecting the long-term interests of Pakistani consumers – a priority that was clearly missing when the power projects were signed between 2014-17 that led to not only the high tariffs that are prevalent today but also compromised the capacity of the country to import fuel in the event of low foreign exchange reserves – a situation that the country has faced repeatedly that accounts for re-engaging with the IMF again and again with the country currently on its twenty-fourth programme.
Copyright Business Recorder, 2024