FINANCIAL CRISIS WARNING: Global economy 'AT RISK from unsafe undercurrents'

Gladys Abbott
October 11, 2018

The latest IMF "World Economic Outlook" report released at the IMF-World Bank Annual Meetings in Bali on Tuesday hints at possible further negative shocks to growth prospects.

"Owing to these changes, our global growth projections for both this year and next are downgraded to 3.7 per cent, 0.2 percentage point below our last assessments and the same rate achieved in 2017", the report said.

But the International Monetary Fund is likely to demand painful structural reforms that would clash with the political agenda of new Prime Minister Imran Khan, who on the campaign trail vowed to build an Islamic welfare state. "Bold decisions need to be taken on the reforms front in order to stimulate growth and sustainable development", said Prof Ncube.

Trump has levied or threatened tariffs on goods from economies around the world, notably China, but also on traditional allies such as the European Union.

The IMF warned that while China has made some progress in containing leverage, debt is still too high.

"He said in the case of Nigeria, the rise in oil prices is sustaining economic activity, but oil exporter", pointing out that oil prices could decline at some point, and so it is important to have some constraint on how much debt is issued. In 2017, India had clocked a 6.7 per cent growth rate.

The rupiah has indeed been under strong downward pressure, especially over the last three months, as a result of monetary tightening and stronger economic growth in the USA, which has caused higher capital outflows, and the upward trend in worldwide oil prices, which has increased Indonesia's trade deficit and consequently the current account deficit to more than 2.5 percent of gross domestic product (GDP). The government has already hiked gas tariff on average by 35 percent and more could follow.

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The government now will have to increase regulatory duties (RD) and customs duty (CD) on imports to contain trade deficit.

"The financial regulatory reform agenda should be completed, and a rollback of reforms should be avoided", the Fund said.

The US-based organisation's warning comes 10 years after the Lehman Brothers investment bank collapsed in September 2008, resulting in the global financial crisis as Wall Street went into meltdown.

The Fund cited a number of other near-term risks to financial stability including the possibility of a "no-deal" Brexit or renewed fiscal policy concerns in some highly indebted euro area countries. It has also loaned billions to Pakistan to help ease the pressure on the foreign currency reserves, which are used to defend the currency.

Analysts say Pakistan needs a loan of around $12 billion to turn the corner, but a diplomat told AFP in August that Islamabad is betting on a loan of at least $6.5 billion to get it through the crisis.

The IMF fears this could lead to sharp falls in markets.

Citing the impact of US taxes on Chinese imports, however, the International Monetary Fund shaved the outlook for China next year to 6.2 percent, which would be the country's slowest growth since 1990.

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