‘The October 2025 update of the Brookings-FT TIGER (Tracking Indexes for the Global Economic Recovery) reveals an economic landscape that seems benign in some ways, but unsettled in others, with household and business confidence weighed down by uncertainty about trade policy, political upheavals in many countries, and geopolitical volatility. Advanced economies are grappling with rising debt burdens, aging populations, and political gridlock, while emerging-market economies, despite being helped somewhat by a weaker dollar (which alleviates financing pressures), are showing signs of strain.’ – An excerpt from an October 10, Project Syndicate (PS) published article ‘Is the global economy as resilient as it seems?’
Three observations to start with, about the excerpt above. Firstly, given the fast-unfolding nature of the climate change crisis, with a number of highly climate change vulnerable countries, including Pakistan, facing relatively more frequent, and intense climate catastrophes, and given a highly unsettling geopolitical economy over the medium-term– and which sharply unfolded as a deeply global recession-causing covid-19 pandemic was only starting to significantly taper– unlike the findings highlighted in the excerpt above, global economic outlook is not ‘benign’ but rather quite under the pump for a number of reasons, including the reasons indicated above.
Secondly, while the emerging economies may have only gotten some cushion in their foreign exchange reserves in the wake of an overall weakening US dollar, that benefit has most likely been significantly undone by the high level of increase in interest payments at the back of over-board austerity policies on external loans; in addition to fiscal pressures with regard to similarly rising domestic debt related interest payments as central banks in many emerging economies, including Pakistan, apparently increased interest rate partly to compete for otherwise highly volatile foreign portfolio investment (FPI).
Thirdly, while it is indeed the case that over-board austerity policy has significantly contributed to increase ‘debt burdens’ in advanced economies, yet apparently an even greater pressure in terms of debt distress has been seen building up in many emerging economies/developing countries in the wake of the covid-19 pandemic, when although sharply rising inflationary pressures were due to both pandemic-induced lock-downs-caused recessionary pressures, and due to deep cracks produced in the global supply chains, and required a significant policy emphasis on the aggregate supply-side, most policy focus was placed on reining-in inflation through practicing over-board austerity policies in many countries.
The overall global economic situation– for instance, as reflected in a paltry performance of economic growth both overall globally, and with regard to developing countries, and the built-up in debt repayments related pressures– both point towards the need to move away from Neoliberalism induced policies overall globally.
Hence recession on one hand dented economic growth, and rising policy rates both overall globally, and in many emerging economies/developing countries domestically significantly contributed to the sharp build-up of debt distress, especially given an overall weak spirit of multilateralism, mainly in the shape of both lack of debt relief, and provision of financial support, in particular from a very limited allocation of International Monetary Fund’s (IMF’s) special drawing rights (SDRs) allocation towards developing countries.
Having said that, the IMF in its recently released October edition of its World Economic (WEO) report more aptly described the difficult economic outlook globally as follows: ‘The rules of the global economy are in flux. …The world’s economies, institutions, and markets have been adjusting to a landscape marked by greater protectionism and fragmentation, with dim medium-term growth prospects and calling for a recalibration of macroeconomic policies. …Global growth is projected to slow from 3.3 percent in 2024 to 3.2 percent in 2025 and to 3.1 percent in 2026. This is an improvement relative to the July WEO Update— but cumulatively 0.2 percentage point below forecasts made before the policy shifts in the October 2024 WEO, with the slowdown reflecting headwinds from uncertainty and protectionism, even though the tariff shock is smaller than originally announced.’
As per the report, in the particular case of Pakistan, during the decade 2007-16 (where in the case of Pakistan, 2007 means fiscal year 2007-08) growth in real gross domestic product (GDP, or simply national income) stood at a paltry 3.5 percent, given it is only around one percentage point above the population growth rate of the country. That being said, economic growth as per the WEO’s October report for the decade after this, that is the period 2017-2026 (which includes projections for 2025, and 2026) is also not much different, standing at 3.4 percent; where economic growth projections for the current fiscal year, as per the report, do not include recent floods-related damages, which are being assessed currently. More so, the report also provides an economic growth projection for 2030, which also does not paint any rosy picture, given it indicates only a slight increase to 4.5 percent, although it is still around five years away!
The overall global economic situation– for instance, as reflected in a paltry performance of economic growth both overall globally, and with regard to developing countries, and the built-up in debt repayments related pressures– both point towards the need to move away from Neoliberalism induced policies overall globally.
Highlighting the misgivings of following neoliberal policies, and rightly calling for an increased role of government– something which saw a significant roll-back in the wake of the neoliberal assault of the last four decades or so– the book Public Purpose: industrial policy’s comeback and government’s role in shared prosperity’ (2021) indicated in this regard ‘The emergent sensibility– what we now call neoliberalism– was codified in 1989 in the Washington Consensus, which championed privatization, deregulation, and free trade.
Along with these central pillars came an emphasis on low budget deficits, independent central banks focused on low inflation, and liberalization of trade and foreign direct investment. This outlook was deeply confident in markets and deeply skeptical of government action… “On the basis of an exhaustive review of the experience of developing economies during the last 30 years”, the World Bank summed up in the early 1990s, “attempts to guide resource allocation with nonmarket mechanisms have generally failed to improve economic performance. Today it is precisely those “market mechanisms” that appear not to have delivered on their promise.’
