The Pakistani government has chose to approach the International Monetary Fund (IMF) for a bailout to address the mounting balance of payments crisis faced by the South Asian country, Finance Minister Asad Umar announced on Monday.
IMF's chief economist and director of research Maurice Obstfeld, told journalists that "what affects the three major economies affect the whole continent as majority of the countries relies on their trajectories".
"Global financial conditions are expected to tighten as monetary policy normalizes; the trade measures implemented since April will weigh on activity in 2019 and beyond; U.S. fiscal policy will subtract momentum starting in 2020; and China will slow, reflecting weaker credit growth and rising trade barriers", the report said.
The South Asia nation's key stock measure snapped six days of losses to advance as much as 3%, the most in more than four months, before paring some gains, while its dollar-denominated bonds maturing in 2027 climbed the most since July 26.
The cut its 2019 United States growth forecast to 2.5 percent from 2.7 percent previously, while it reduced China's 2019 growth forecast to 6.2 percent from 6.4 percent. It is therefore closer to the government's forecast for 2.5 percent growth, and the latest projection by the European Commission (in July) for 2.3 percent.
The Eurozone's 2018 growth forecast was cut to 2.0 percent from 2.2 percent previously, with Germany particularly hard hit by a drop in manufacturing orders and trade volumes.
Speaking in Bali, Obstfeld said the country needed substantial improvements to its infrastructure and China could help in this regard, but "the design of the projects, and the governance of the projects must be sound" to avoid excessive debt or financial instability. It also noted that "while financial market conditions remain accommodative in advanced economies, they could tighten rapidly if, for example, trade tensions and policy uncertainty were to intensify (and) monetary policy is another potential trigger".
Weaker performances by eurozone countries were also to blame for cutting global growth forecasts, the International Monetary Fund said.
"In Nigeria, inflation is projected to fall to 12.4 per cent in 2018 from 16.5 per cent in 2017, and to rise to 13.5 per cent in 2019".
The IMF said a high interest burden and risks from rising yields in India also require continued focus on debt reduction to establish policy credibility and build buffers.
Some energy-rich emerging market countries have fared better due to higher oil prices, with Saudi Arabia and Russian Federation seeing forecast upgrades.
The IMF chief economist said that while government officials have been moving to rein in China's credit expansion, it was understandable they would take steps to boost growth in the face of trade tensions with the USA, and these have impacted short-term economic growth, affecting the yuan.
Trade tensions are expected to continue although Fund officials view U.S. -Mexico-Canada trade agreement as a positive sign. The US dollar gained by over Rs6.50 to touch the new high in the open market, while in the interbank market it rose by Rs9 to reach Rs133.64. It now expects the global economy to only expand by 3.7% in 2018 and 2019, down from 3.9% before. -China trade war, coupled with threatened global USA automotive tariffs and retaliation from trading partners.