Published: Tue, October 09, 2018
Worldwide | By Jermaine Blake

Islamabad to start talks with International Monetary Fund for bailout loan

Islamabad to start talks with International Monetary Fund for bailout loan

-China tariff war's impact to be felt next year, the Fund cut its 2019 USA growth forecast to 2.5 percent from 2.7 percent previously, while it cut China's 2019 growth forecast to 6.2 percent from 6.4 percent.

The dominant USA economy has been shielded from the ill effects so far due to the stimulus provided through tax cuts and spending policies, but that will wear off by 2020.

Growth is expected to "remain strong elsewhere in emerging and developing Asia", the International Monetary Fund said, forecasting Indian growth to increase to 7.3 per cent in 2018 and 7.4 per cent in 2019.

United States growth this year remained steady at 2.9 percent but is set to slow in 2019 as the effect of Trump's sweeping tax cuts wear off and the trade dispute with China begins to set in.

The euro zone's 2018 growth forecast was cut to 2% from 2.2% previously, with Germany particularly hard hit by a drop in manufacturing orders and trade volumes.

In the United States, momentum is still strong as fiscal stimulus continues to increase, but the forecast for 2019 has been revised down due to recently announced trade measures, including the tariffs imposed on $200 billion of USA imports from China.

"Securing US approval on the IMF Executive Board will require Pakistan to strike a fine geopolitical balance between the Trump administration's concerns over China's growing economic engagement in Pakistan and the country's bilateral commitments", said Bilal Khan, a senior economist at Standard Chartered Plc. "Any sharp reversal for emerging markets would pose a significant threat to advanced economies", he added.

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"The prime minister, after consulting everyone, decided today that we should open talks with the IMF", Umar said.

Trade tensions are expected to continue although Fund officials view US-Mexico-Canada trade agreement as a positive sign. In this regard the finance minister shall hold meetings with the top leadership of IMF during the annual meetings of World Bank/IMF at Bali later this week, the statement concluded.

"Where we are now is we've gotten some bad news". Threats include a further inflaming of the trade war between the USA and countries including China, and a sharper-than-expected rise in interest rates, which would accelerate capital flight from emerging markets.

Most of the "meager gains" from growth have gone to the well off, fueling support for protectionism and anti-establishment leaders, said Mr Obstfeld.

The model also includes the effects of a reduction in business confidence that reduces investment and leads to a tightening of financial conditions. These were reduced by 0.2 and 0.4 percentage points for this year and next, partly as a result of higher interest rates making these nations' debts more costly to service.

It also assumes that Trump imposes a 25% tariff on imported cars and auto parts imports. German growth was revised down to 1.9 percent in both 2018 and 2019 due to a slowdown in exports and industrial production.

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