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EDITORIAL: It’s interesting, and ominous, that IMF (International Monetary Fund) chief Kristalina Georgieva admitted, in Beijing during a conference this week, that 2023 would be “another challenging year” and warned that everything from the Ukraine war to the Covid “scarring”, especially the American banking crisis that continues to rattle financial markets, would push global growth below three percent.

On the surface this was just the usual acceptance that some of the fears circling the market had some truth in them. And the fact that the head of the IMF was also worried said a lot.

Yet reading between the lines reveals a deeper realisation that the global financial system has suddenly come under more stress than anybody had anticipated.

The Covid hangover was bad enough. Then the Ukraine war erupted, triggering a commodity super cycle and unleashing global inflation not seen in 40 years. Then two top tech-sector banks in America collapsed out of nowhere, spreading contagion fears all the way to Europe and forcing an emergency UBS takeover of Credit Suisse.

And then it turned out that Chinese President Xi Jinping’s landmark trip to Moscow wasn’t just a political headache for Washington, but Russian President Vladimir Putin later announced that they had talked about shifting the bulk of Russian trade out of the dollar and into the Chinese yuan.

So now there’s not just clawing out of Covid’s influence and a banking panic to worry about, there might also really be a threat to the dollar’s status as the world’s reserve currency not too far down the road.

The IMF, along with the World Bank, was born out of the Bretton Woods agreement to serve as pillars for international capital financing in the new dollar-denominated and -dominated system. That explains why it would be among the first premier institutions to smell fear and sound the alarm. Markets are also clearly nervous, with major equities and commodities holding their breath, convinced that the worst is yet to come.

The global economy is already on the verge of recession and in no position to withstand bank runs spread across continents and financial nerve centres.

If market confidence is not restored at once, there is enough uncertainty, amid political polarisation reminiscent of the Cold War, to spark genuine fears of a possible unravelling of the current international economic/financial order after more than three quarters of a century of complete dominance.

All this is very bad news, especially for countries like Pakistan that are struggling to stay solvent and could, quite literally, default at any time. A world plunging into another recession and gripped by uncertainty might not have the spare time or resources to bail us out yet again. That could be one of the reasons, on top of our own bad record of paying back debt of course, that even friendly countries seem in no mood to roll over loans or park their billions in Pakistan’s central bank all over again.

The world’s bigger powers will no doubt be consumed by far bigger things for some time to come. Let’s not forget that most of these economic complications emerged just when the so-called west was already in the thick of a deep conflict with Russia and its sphere of influence; one that goes far beyond the war in Ukraine and now has China, for all intents and purposes, firmly entrenched in Russia’s corner.

Kristalina Georgieva must have considered all these angles, and much more no doubt, when she stressed the “need for vigilance” in Beijing. Whether or not the global economy can come out of these challenges unscathed remains to be seen. But there can be no denying that it hasn’t seen such fragility in quite some time.

Copyright Business Recorder, 2023

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