Cash-strapped Pakistan to approach International Monetary Fund for bailout package

Clay Curtis
October 9, 2018

"Notwithstanding the present demand momentum, we have downgraded our 2019 United States growth forecast owing to the recently enacted tariffs on a wide range of imports from China and China's retaliation".

The IMF, after consultations with the finance minister, had earlier stated that Pakistan needed to quickly secure "significant external financing" to stave off a crisis, though it did not suggest who could supply the money.

The IMF said that trade policy tensions and the imposition of import tariffs were taking a toll on commerce while emerging markets struggle with tighter financial conditions and capital outflows.

"Going to the International Monetary Fund is a positive trigger because it will remove the underlying causes for concern, which is that government targets will further weaken", said Suleman Maniya, head of research at local brokerage house Shajar Capital.

The eurozone's 2018 growth forecast was cut to 2.0 percent from 2.2 percent previously, with Germany particularly hard hit by a drop in manufacturing orders and trade volumes.

The IMF maintained a previous forecast for growth of 6.6 per cent for 2018.

After a visit last week, the IMF issued a report saying Pakistan is facing significant economic challenges, with declining growth, high fiscal and current account deficits, and low levels of global reserves.

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The IMF has been recommending that Chinese authorities de-emphasize the quantity of growth to focus more on its quality and sustainability to allow the economy to better withstand shocks, Obstfeld said. It now expects the global economy to only expand by 3.7% in 2018 and 2019, down from 3.9% before.

Some energy-rich emerging market countries have fared better due to higher oil prices, with Saudi Arabia and Russian Federation seeing forecast upgrades.

On the eve of its annual meetings in Bali, Indonesia, the fund on Tuesday projected a global expansion of 3.7 per cent this year and next, down from the 3.9 per cent projected three months ago.

Most of the "meager gains" from growth have gone to the well off, fueling support for protectionism and anti-establishment leaders, said Mr Obstfeld. Threats include a further inflaming of the trade war between the USA and countries including China, and a sharper-than-expected rise in interest rates, which would accelerate capital flight from emerging markets.

India's medium-term growth prospects remain strong at 7.75 per cent, benefiting from ongoing structural reform, but have been marked down by just under 0.5 percentage point relative to the April 2018 WEO, it said.

That includes President Donald Trump's imposition of tariffs on $250 billion in Chinese goods, as well as on aluminum, steel and other products worldwide.

Adjustments would occur as domestic production displaces higher-priced imports, the model shows, but in the long run, the U.S. GDP would still be 1.0 percent below a baseline without these tariffs, while China's GDP output would be one half percent below the baseline.

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