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Global perspective has recently changed as economies have shown to be more resilient than experts had anticipated. The US and China will continue to be the main sources of direction for the global market.

The consumer price index (CPI), which increased significantly during the COVID outbreak, and global GDP growth will be the Central Bank’s (CB) primary focus this year. CPI is currently getting closer to the CB’s target after peaking in the third quarter of 2022. Nonetheless, there are still a lot of risk factors and a fragile, uncertain macroeconomic environment.

In addition, given the ongoing conflict between Russia and Ukraine as well as the instability in the Middle East, the potential for supply-side shocks exists, which can adversely impact on the recovery.

Despite the predictions of many economists and analysts, the US, which is regarded as an engine of global growth, did not succumb to the economic slump and instead rebounded quickly. The US economy was not significantly affected by its trade war with China.

However, China’s recovery is wobbly. It was expected to be the first to recover after the Covid pandemic, but it didn’t. The crumbling of the property market is to blame for Chinese economy’s recent difficulties. For a healthy global economic environment, the ongoing trade tensions between the US and China must be resolved because they have a greater negative impact.

There was little evidence of the threat posed by increased interest rates leading to excessive debt accumulation in global economies. However, this did not happen as a result of big economies giving out free money or offering cheaper liquidity on flexible terms. In expectation of a significant interest rate reduction this year, all eyes will be on the US and G7 economies.

Based on estimates for 2024, US GDP growth rate is likely to be 1.4%, unemployment rate 4.1%, and inflation 2.4%. The Federal Reserve projects that the Fed Fund will peak at 4.6% which is lower than September’s prediction of 5.1%. This implies that the Federal Reserve will cut interest rates by 75 basis points in 2024.

Central banks may not take as much action as per their dot plot until there are clear indications that inflation is approaching a controllable level. In spite of the Bank of England’s (BOE’s) cautious view, expectations have slightly shifted in favour of a potential rate reduction in the first half, following the decline in CPI to 3.9% in November.

In contrast, the European Central Bank (ECB), which is dealing with recession and poor growth, doesn’t seem to be clear whether or not interest rates should be lowered and by how much.

However, after hitting a 10 percent peak the previous year, inflation dropped to 2.9% on November 23, which may persuade policymakers to lower interest rates by the middle of 2024.

Many economists and analysts, however, believe that central banks would aggressively slash interest rates this year, which may not be a good idea.

100.90 US DOLLAR (DXY)

The FED’s policy standing will determine the direction of the USD. At first, the initial sense is that problems will not ease. The economy will be the main feature, but everyone’s attention will be on when the rates are slashed. The market will gain some insight into the direction after the first US rate cut. A delay will let down the doves amongst the investors who are hoping for more decisive action. A 25bps (basis points) drop in 2024’s first half will arrest the potential decline in the value of the dollar.

US Dollar Index (DXY) may stay around 95 for an extended period of time. Potentially, it can test 88-90 zones.

The biggest economic risk is expected to come from oil prices, which will probably average roughly around $87 a barrel. There is a likelihood that it will quickly rise above $100 per barrel, with a bottom around $58–60.

This writer anticipates a 25bps to 50bps reduction in the Federal Reserve rate in 2024, which will provide some breathing room for the bond market, which is anticipated to rebound along with USD.

GOLD @ $2062.66- I can see the rally continuing, but only if gold is able to break $2140 and move into the $ 2190–00 zones. Then it might test levels of $2220–40 and if there is a breakthrough it can run out sooner.

It is likely to fall earlier. It is possible that a break below the 1985–1990 range might drive it down to the 1890–00.

EURO @ 1.0350- The up move will find strong resistance around 1.1280. If it is able to clear it then the next level will be 1.1560 or slightly higher.

However, I am not ruling out the downside risk. A break of 1.0705-20 could potentially see more losses for Euro and it could then dip further down to test 1.0480 zones.

GBP @ 1.2730- Pound Sterling has key support around 1.2540 and should hold for the upward move. A break of 1.2970-90 will open gates for 1.3150-80. Only a move beyond 1.3220 will encourage for 1.3505. It could exhaust earlier because of the sales risk. On the downside, next level to watch will be 1.2350.

JPY @ 141.03- USD could see some more losses against the Japanese currency. A break of 139.40 will open gates for 135.50. However, if Dollar is able to clear 144.20, it could inch up towards 146.80-00 zones otherwise 32.50.


2024 is an election year in Pakistan. Severe constraints and numerous unresolved economic problems confront the country in addition to foreign policy and the challenges related to domestic and cross-border security. The newly elected government will be required to work harder to overcome these challenges.

Because of financial constraints, there is a persistent danger of external shocks due to the shrinking fiscal space and macroeconomic vulnerability.

The issue won’t be fixed until economic managers recognise that the loans from the IMF and friendly nations constitute, at best, a stop-gap arrangement and these need to be replaced with long-term, productive businesses in order to put the economy on a solid footing. How major political parties intend to handle the compelling economic issues should be the focus of their manifestos and agendas during this challenging time.

Thanks to its successful avoidance of default, the economy has just rebounded from the verge of tragedy. However, for a country that has relied solely on foreign loans to finance itself for many years, this is not something new. In contrast to the past, Pakistan is not a significant regional political ally now. In the past, the nation was crucial to the global balancing act. For over a decade it has benefited from waivers, concessions, and frequent escapes due to its supportive policies and role in the international arena, which allowed it to avoid negative fallout for noncompliance.

Global political norms have entirely changed. Decades have passed but the subsequent governments have not implemented the necessary structural and strategic adjustments.

The manufacturing and industrial sectors are actually not growing much. Due to domestic and foreign borrowing and financing designed to cover the shortfall, the economy’s debt loads continue to mount. Due to volume growth and the depreciation of the Pakistani Rupee, tax receivables in Rupee terms have climbed. Nevertheless, tax-to-GDP ratio, the true measure of revenue collection growth in percentage terms, continues to decline and has now reached a worrisome level.

Machinery and goods’ imports continued to increase. The low rise in exports, however, has caused problems with the balance of payments. Additionally, the fiscal deficit was never on track due to a decline in exports and a tax to GDP ratio that was much below the intended range of attaining 12% to 15%, making it difficult for the economy to sustain higher GDP growth and job creation. A look, however cursory, at the macro-level data creates a sense of realizing the urgency for fundamental reforms.

Debt (both domestic and foreign) totals Rs 64.5 trillion, Open Market Operations (OMO) stands at Rs 10.079 trillion, Currency in Circulation (CiC) reaches Rs 8.6 trillion, banks GoP Holdings (T/bills, Bonds and Sukuk) are of Rs 20.8 trillion, tax-to-GDP stands at less than 10%, banks’ deposits total Rs 26.797 trillion, banks’ advances total Rs 11.963, or a 44.7% bank lending ratio against its deposits. Annually, external financing should be of approximately $36-38 billion.

Therefore, after the program’s expiration, there is no other option except to turn to the IMF yet again because there isn’t much time left.

Economic remedy

Nevertheless, Pakistan’s economy can rebound through some significant structural changes in spite of all the difficulties. ‘Number one priority’ should be taxing all incomes without providing tax evaders with the option of avoiding paying taxes or exploiting loopholes. Targets should be achieved by taking steps aimed at increasing the tax-to-GDP ratio to above 15% with the goal of reaching 20% or higher in five years.

(To be continued tomorrow)

Copyright Business Recorder, 2024

Asad Rizvi

(The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper)

He tweets @asadcmka


Comments are closed.

Aslam Tanoli Jan 02, 2024 09:55pm
No hope
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M M Alam Jan 02, 2024 11:43pm
Document the undocumented economy. What lies beneath the tip is the real iceberg.
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