By Zulqarnain Haider
The ongoing global financial crisis will not hit Pakistan‘s economy hard, believes experts in the finance ministry. The International Monetary Fund (IMF) has recently warned that the storm clouds of the next global financial crisis are gathering but the world financial system was not ready to deal with it.
David Lipton, the fund’s first deputy managing director, also warned that recent capital outflows had further exposed vulnerabilities in emerging markets, which could be hit harder by the next global crisis.
“As we have put it, ‘fix the roof while the sun shines.’ But like many of you, I see storm clouds building, and fear
the work on crisis prevention is incomplete,” said Mr Lipton while addressing the Bloomberg Global Regulatory Forum, London.
In his speech Tuesday last, Lipton also urged those emerging economies who had not shored up their defences against shocks to act now.
“Capital outflows over the past several months have shown how markets are judging the perceived weaknesses in individual countries. If global conditions become more complicated, these outflows could increase and become more volatile,” he said.
He said individual nation states alone would lack the fire-power to combat the next recession and governments to work together to tackle the issues that could spark another crash. “Working together, we will be better able to prevent a damaging downturn in the coming years and a dystopian future in the coming decades,” he said.
The IMF official identified five key policy challenges that could affect the next downturn — areas where governments face a choice to take proactive steps now, or not, and where inaction would probably make matters worse.
The first challenge he said was “doing no harm.” The second was dealing with China as an economic powerhouse. The third was preparing Europe for global responsibility applies to Europe as well. The fourth challenge was helping emerging markets deal with their vulnerabilities. The fifth and final challenge was the role of multilateral institutions.
The IMF official quoted two recent examples to explain his first point: US fiscal policy over the past year, which risked raising deficits and public debt; and spending resources that might better be put aside to combat the next downturn.
Another example was the recent escalation of tariffs and trade tensions.
But he noted that fortunately, the US and China agreed in Buenos Aires last month to call a ceasefire. That was a positive development. Noting that nations may have some legitimate concerns about a number of trade practices, he said: “The only safe way to address these issues is through dialogue and cooperation.”
Lipton also used a Winston Churchill quote to urge the US to show restraint: “The price of greatness is responsibility.”
The IMF official called on China to take urgent steps to open up its economy to global competition. China, he said, needed to lower trade barriers, while also impose tougher rules to protect intellectual property to meet a key US complaint.
He noted that Chinese trade policies that were once considered “acceptable” when it joined the World Trade Organisation in 2001 as a $1 trillion economy but the same policies were not appropriate for a $16tr economic superpower.
“We are already hit by financial crisis. But we are hopeful to get out of it by 2020. However, the world’s financial crisis may have a least impact on us,” a member of Pakistan Finance Minister Asad Umer’s team told Dubai News.
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