Global economic growth is forecast to edge up to 2.5% in 2020 as investment and trade gradually recover from last year’s significant weakness but downward risks persist, the World Bank says in its January 2020 Global Economic Prospects. Growth among advanced economies as a group is anticipated to slip to 1.4% in 2020 in part due to continued softness in manufacturing. Growth in emerging market and developing economies is expected to accelerate this year to 4.1%. This rebound is not broad-based; instead, it assumes improved performance of a small group of large economies, some of which are emerging from a period of substantial weakness. About a third of emerging market and developing economies are projected to decelerate this year due to weaker-than-expected exports and investment. The Bank warns of risks to this outlook. Iran is a reminder that conflict in the Middle East is an ever present danger that can have economic consequences. The report was written before those events took place.
There is also a concern about a rapid build-up of debt in emerging economies. The Bank says a wave of debt accumulation began after the global financial crisis. For emerging and developing economies, the report says “the increase in debt in these economies has already been larger, faster, and more broad-based than in any of the previous three waves”. Growth in the region is expected to rise to 5.5% in 2020, assuming a modest rebound in domestic demand and as economic activity benefits from policy accommodation in India and Sri Lanka and improved business confidence and support from infrastructure investments in Afghanistan, Bangladesh, and Pakistan. In India, where weakness in credit from non-bank financial companies is expected to linger, growth is projected to slow to 5% in FY 2019/20, which ends March 31 and recover to 5.8% the following fiscal year. In its ‘2020 Global Economic Prospects’ of the World Bank, it postulates 2.4 percent GDP growth for FY2020 for Pakistan. This is 0.3 percent lower than its estimate in June 2019. The fact that the revision is downward reflects a problem of macroeconomic management rather than anything else. More precisely, the revised estimate is the result of monetary tightening, which has been imposed because of IMF conditionalities, and which are estimated by the World Bank to continue to persist for at least two years more.
However, Pakistan has a high population growth rate. That means that any growth figure must have two percent (the population growth revealed in the 2017 census) subtracted. That means that a growth rate which would be respectable in an industrialised European country, should be cause for consternation in Pakistan. Among other things, it means that the Pakistan Tehreek- e-Insaaf (PTI) government will come nowhere near fulfilling the boasts that 2020 will be a year of carrying out its promises. Just to take one benchmark, there will be none of the massive job creation that is needed to provide employment to the youth bulge as it enters the job market. This is a serious issue for this government, for the PTI targeted precisely this youth bulge in the 2018 election campaign which brought it to power. Anaemic growth also means that defence spending cannot grow except at the expense of social-sector spending. At a time when the regional challenges are so pressing, it would be difficult to rein defence spending. The Prime Minister’s initial reluctance to obtain an IMF package now stands justified. That package was predicted widely to be unconcerned with growth, and its conditionalities designed to make it easier to service foreign debt. Interest rates are going to remain high, and growth low, for the near future, and the ordinary man will not see any relief for the next couple of years. He may not even then, but the strict following of the IMF conditionalities guarantees it for at least two or three fiscal years more.