‘The 2020s are almost halfway over and are on course to be the most difficult decade for the global economy since the 1930s. Every finance minister and central bank governor at the spring meeting of the International Monetary Fund in Washington last week knows that, even if they were not prepared to admit it publicly.’ – An excerpt from April 21 Guardian published article ‘Most difficult global outlook since 1930s heralds end of US-led world order’
The title of April 2024 World Economic Outlook (WEO) report by International Monetary Fund (IMF, or simply the ‘Fund’) being ‘Steady but slow, resilience and divergence’, and a rather upbeat mood of the Fund with regard to growth prospects, whereby IMF’s economic counsellor, Pierre-Olivier Gourinchas, pointed out in the foreword to the Report: ‘The global economy remains remarkably resilient, with growth holding steady as inflation returns to target. …despite many gloomy predictions, the world avoided a recession, the banking system proved largely resilient, and major emerging market economies did not suffer sudden stops.’
While it is essential to have optimism to keep moving forward in a purposeful way, the underlying risks – especially in the shape of fast-unfolding climate change crisis, the looming large related ‘Pandemicene’ phenomenon, a huge debt crisis facing dozens of developing countries, including Pakistan, weakening multilateralism at a time when it is needed most to deal with existential threats, and to bring much-needed positives in terms of trade dividends for developing countries from a more equitable globalization to help stem otherwise fast increasing poverty, not to mention lacklustre progress on sustainable development goals, in particular because of acute fiscal space, and practice of over-board austerity policies – call for a more cautious messaging from IMF to push for greater effort by countries.
A more representative analysis came through World Bank’s flagship ‘Global Economic Prospects’ (GEP) report, released earlier in January had a more cautious approach in terms of optimism for the global economy, pointing out ‘…beyond the next two years, the outlook is dark. The end of 2024 will mark the halfway point of what was expected to be a transformative decade for development—when extreme poverty was to be extinguished, when major communicable diseases were to be eradicated, and when greenhouse-gas emissions were to be cut nearly in half. What looms instead is a wretched milestone: the weakest global growth performance of any half-decade since the 1990s, with people in one out of every four developing economies poorer than they were before the pandemic.’
Although global economic outlook as per GEP stood at 2.4 percent and 2.7 percent in 2024 and 2025, respectively, which has somewhat improved in WEO April 2024 report at 3.2 percent for both years, yet the underlying concerns raised by GEP still hold firmly, and requires of IMF for carrying more restrained sense of optimism. Similar caution is needed in terms of not reading too much into improvement in projected economic growth outlook, for instance of Pakistan, whereby as per GEP January report, real GDP (gross domestic product, or simply national income) growth projections stood at 1.7 percent, and 2.4 percent for 2024 and 2025, respectively, which have somewhat improved as per WEO at 2 percent, and 3.5 percent.
The criticality of the decade of 2020s comes out foremost in terms of the fast-closing window of saving the world from potentially irreversible impacts of climate change – mainly in terms of more intense, and more frequent climate change related natural disasters – if the average annual global temperature exceeds 1.5C. At most this decade, or a few years into the next is the most time scientists are giving to policymakers, and people in general for reining in global warming. A March 2023 New York Times (NYT) article ‘Climate change is speeding toward catastrophe. The next decade is crucial, U.N. panel says’ highlighted the following in this regard: ‘Earth is likely to cross a critical threshold for global warming within the next decade, and nations will need to make an immediate and drastic shift away from fossil fuels to prevent the planet from overheating dangerously beyond that level, according to a major new report released on Monday. The report, by the Intergovernmental Panel on Climate Change, a body of experts convened by the United Nations… says that global average temperatures are estimated to rise 1.5 degrees Celsius… above preindustrial levels sometime around “the first half of the 2030s,” as humans continue to burn coal, oil and natural gas. …Beyond that point, scientists say, the impacts of catastrophic heat waves, flooding, drought, crop failures and species extinction become significantly harder for humanity to handle.’
Secondly, with higher intensity of global warming, the probability of another pandemic – the ‘Pandemicene’ phenomenon – will likely increase. Already, developing countries in particular are unable to turn the trend back to a decreasing path for absolute poverty. An April Guardian article ‘Covid pandemic made poorest countries even worse off, World Bank warns’ pointed out in this regard: ‘The devastating impact of the pandemic on the world’s poorest countries has brought poverty reduction to a halt and led to a widening income gap with nations in the rich west, the World Bank has warned. In a report released to coincide with its half-yearly meeting, the Washington-based organisation said half of the world’s 75 poorest nations had seen income per head rise more slowly than in developed countries over the past five years.’
Unfortunately, when the world needed to come together, to deal with these existential threats in a much more mission-oriented manner, especially after serious concerns of the global south over the lack of multilateralism shown by developed countries in general, especially in terms of Covid related vaccines’ production and distribution, weak efforts at the World Trade Organization (WTO), for instance, including foot-dragging in even reaching consensus on a ‘global pandemic treaty’, in addition to rise in risk of wider conflict, given the war in Ukraine, and a serious conflict in the Middle East, during the decade up till now, not to mention the impact this is having on global supply chains, couple with years of weakening of state capacity to effectively responding to shocks in the wake of neoliberal onslaught, have all been factors that need to be better internalized when determining the extent of optimism one needs to attach as done by IMF to global economic prospects.
The same article ‘Most difficult global outlook since 1930s heralds end of US-led world order’ highlights this lack of global unity in terms of analyzing challenges being faced, and how to resolve them as follows: ‘The IMF likes to look on the bright side. It revised up slightly its forecast for global growth and now thinks scarring from the coronavirus pandemic and the cost of living crisis will be less severe than it originally feared. …This analysis is only true up to a point. There has been plenty of scarring in the poorest and weakest countries, and in the developed world the US is the outlier, with performance markedly worse in Europe. Medium-term growth prospects remain poor. The war [in Ukraine] has highlighted and widened the gulf between the wealthy countries of the global north and the big emerging countries of the global south. …When the G7 asks for a show of solidarity to oppose Russian aggression, they ask where the solidarity was during the pandemic, when rich countries took the lion’s share of the vaccines. They want to know why G7 countries have cut their aid budgets and why a debt crisis has been allowed to fester. They have a point on all counts.’
In particular, with regard to the lack of multilateral spirit shown both in terms of weak debt relief towards developing countries, and much-needed greater provision of special drawing rights (SDRs) by IMF, on one hand, and on the other, instead over-emphasis placed by IMF on developing countries in terms of adopting austerity policies – not to mention IMF’s continuation of charging ‘surcharge’ fee from programme countries – not allowing developing countries to make needed expenditures with regard to climate change, health sector resilience and poverty reduction.
With regard to weak multilateral spirit in terms of facilitating developing countries facing debt challenge, an April 21 Guardian article ‘World Bank official calls for shake-up of G20 debt relief scheme’ pointed out: ‘The mechanism for providing debt relief to the world’s poorest countries is failing to produce results and requires a major rethink, a senior official at the World Bank has said. Indermit Gill, the bank’s chief economist, said that after four years the G20’s common framework – designed to speed up and simplify debt restructuring – had not provided a single dollar of new money. More than half the 75 countries deemed poor enough to be eligible for concessional finance from the World Bank are either in distress or close to it, and Gill said cripplingly high repayments were entrenching poverty. …He said lessons should be learned from the blueprint drawn up in the 1980s by the then US treasury secretary, Nicholas Brady, to deal with a previous debt crisis. The Brady plan provided a systematic approach to debt relief, ensured private creditors were part of the process from the start, and involved creditors accepting losses in return for assurances about the ability of debtor countries’ capacity to repay.’
Copyright Business Recorder, 2024