On a budget

At the beginning of each month, a salaried person might find themselves gleeful over receiving the fruit of their labour. This sense of delight often brings with it a paradoxical dilemma; the arrival of money is the guarantee of its departure.

‘Default’ is a term that borders on being colloquial due to its frequent appearance in the national media given its tendency to loom over the country as the economic sword of Damocles. Its relevance seems to be increasing internationally with the onset of what looks like a fiscal pandemic. The US hit its debt ceiling on January 19, 2023. China’s economy grew by only 3.0 per cent in 2022, the slowest in decades.

One-third of the world is expected to be in recession this year, according to IMF head Kristalina Georgieva. According to the latest Global Economic Prospects report of the World Bank, growth in advanced economies is predicted to slow from 2.5 per cent in the past year to 0.5 per cent in 2023 as the expected global growth is downgraded to 1.3 per cent from 3.0 per cent six months ago.

GDP levels in emerging and developing countries are projected to stand roughly 6.0 per cent lower than expected in the pre-pandemic era. Arab countries barring part of the Gulf are experiencing economic mayhem as the Syrian, Sudanese, Egyptian and Lebanese currencies were among those that fared the most poorly in 2022. These expository pieces of information should be ringing alarm bells for the rest of the world, with statistics indicating the need for a paradigm shift in the approach towards remedying suffering economies being taken at the moment.

This pinnacle of economic woes was not reached overnight. The US national debt increased from $5.6 trillion to $31 trillion over two decades. China’s three-year-long zero-tolerance policy towards the coronavirus pandemic burdened local government finances while submerging the economy in turmoil. The Covid-19 pandemic exposed longstanding loopholes in the health system worldwide. An influx of climate-related catastrophes has proved that climate change is as real as a phenomenon can get. The Russia-Ukraine war has caused monumental disruptions in fossil fuel supplies that have further paved the way for increased inflation.

In order to keep the wolf out of the door, it is vital that a consensus is formed internationally in what would be an unexpected and unprecedented display of unity from economic titans all over the globe. This has to be preceded by the realization that the monetary struggle is mutual. It would be worthwhile to consider whether the formation of a multilateral forum established solely to address the ongoing global economic emergency could potentially lead to the alleviation of the magnitude of the crises we face as a global community.

The effectiveness of this approach is greatly dependent on the resolution of the conflicts that involve multiple parties, especially in the backdrop of the Russia-Ukraine war, the tug-of-war between the US and China, a new governmental setup in Afghanistan and a plethora of other tensions that plague the world.

The phrase ‘Sometimes it has to get much worse to get better’ is given a new meaning when we take into account how the monetary measures that need to be taken as solutions to issues are also the very policies that will initially lead to exacerbating the symptoms already experienced. These indicators include the measures taken to reduce the impacts of the surge in commodity prices globally, government spending as well as hiking tariffs and duties in response to the demands of international lending organizations, which is the reality many low and middle-income economies are facing.

In Egypt, eggs have become a luxury that many struggle to afford due to the ongoing crisis with merely a carton costing $4.23. It is worth mentioning that the country has opted to seek help from the IMF for the fourth time in six years, which goes to show that meeting the stern, and often rigid, demands of the organization is not facile for governments in the least.

In Pakistan, the structural inflation resulting from a lack of infrastructural capacity and reduced ability to combat the supply-chain constraints will pose a source of distress for the time being, before the country is hopefully up and standing on its own two feet.

When the world emerges from the aforementioned crises, it is probable that it will reflect on the ordeals as it is human nature to look at matters in hindsight. It is expected then that the shortcomings of the current financial models that are pursued worldwide will be staring us in the face, beckoning and inspiring us to move to alternate formulas and methods in an effort to construct a sustainable plexus of fiscal affairs. To analogize, the world seems to have developed an allergy to the current economic systems. It is the prerogative of the various stakeholders and arbitrators involved to begin the production of a potent antidote.

From the moment that the notion of the world being a global village gained momentum, the interdependent nature of entwined economic ties cemented itself as the harbinger of collective prosperity and a shared quandary. The world currently resembles an average middle-class household that has tightened its belt and is on a budget; what remains to be seen is whether it has the ability to endure and persevere like the latter.

The writer is an intern with Foreign Minister Bilawal Bhutto Zardari at the Ministry of Foreign Affairs, Islamabad.