IMF could do with a bigger crisis than it forecasts
After a chaotic first half of U.S. policy upheaval and trade shocks that unleashed a wild but brief rollercoaster on financial markets, the
International Monetary Fund
's assessment is that global growth and inflation remain pretty much on even keel.
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IMF
economists make the case that economic activity around the world is still relatively subdued compared with historical averages and inflation slightly elevated.
But these quibbles are essentially within margins of error in its midyear global forecasts.
Revising up a prior outlook that was made in the white heat of April's U.S.
tariff
turmoil, the IMF on Tuesday reckoned the world will sail on with a 3.0% expansion this year and 3.1% next - the latter two tenths slower than 2024 but exactly the average growth rate of the past 10 years.
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Virtually every major economy's expected growth was nudged up, with the only exception being a marginal shaving of the forecast for Japan's 2026 expansion.
To put it mildly, this is not the singular economic shock some feared in April as trade war drums sounded loudly. And even the IMF's outlook back then was well shy of the deep recession many were fretting about.
To be fair to the IMF, it's been chasing a moving target on tariffs just like everyone else. Despite greater clarity on Washington's endgame over the past week, the issue would have been still in the air as the Fund was formulating these forecasts.
But it's hard to escape the fact that as the largest economy in the world embarks on a unilateral protectionist push that upends decades of multilateral agreements and conventions, there's little obvious or immediate economic fallout.
That must feel uncomfortable for a doyen of multilateralism such as the IMF - not least given its decades-long espousal of the so-called 'Washington Consensus', the orthodox economic policies that put free and open trade at the apex of its prescriptions.
STILL HURTING
Explaining the Fund's relatively benign forecast update, IMF chief economist Pierre-Olivier Gourinchas noted that a sharp drop in the dollar flattered the overall global picture, both statistically and by loosening financial conditions broadly.
Gourinchas also cited multiple "crosscurrents" blurring the outlook - such as the frontloading of imports to beat the tariffs, offsetting fiscal stimuli in Europe, tax cuts in the United States and softer energy prices worldwide.
And he added that even though a bullet had been dodged, an effective U.S. tariff rate of 17% would still reverberate around the globe. "It's going to continue hurting with tariffs at that level, even though it's not as bad as it could have been," he said, referring to the 24% rate assumed back in April.
Different IMF scenarios highlighted what could yet go wrong.
But as the full recovery in financial markets since April already nods to, President Donald
Trump
's tariff war and use of trade levies as a revenue-raising tool to reduce income taxes has fallen into place with relatively minor macro costs so far.
The risk for the IMF is that after years of holding free trade up as central to economic progress and stability, the lack of a clear impact from such a breach of orthodoxy undermines that very case both in America and abroad.
What's more, other aspects of the Washington Consensus - such as independent central banking or even capital controls - may now be seen as less canonical than previously assumed too as a result.
Trump, of course, is already pushing the central bank taboo.
And yet again the IMF felt the need to push back.
"This is really a core plank for macroeconomic stability overall," Gourinchas said of central bank independence on Tuesday. "That's one of the hard-learned lessons of the last 40 years."
Not unlike difficulties pro-European politicians in Britain had identifying the precise damage caused by the Brexit referendum in its immediate aftermath, there's a chance the real cost of unraveling global policy orthodoxies similarly take years to realize. A slow burn rather than an instant crash.
For the IMF and supporters of an open rules-based multilateral order, a bigger crisis than the one that's unfolding or that they are forecasting may have been more useful longer term.
The opinions expressed here are those of the author, a columnist for Reuters
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First Post
a day ago
- First Post
A question for Munir: Why India became ‘Mercedes' and Pakistan a ‘dump truck'?
Asim Munir's 'Mercedes vs dump truck' analogy was meant to show Pakistan's grit, but in the cold light of economic history, it only revealed just how far the country has stalled while India races ahead read more Wish Pakistan Army's Field Marshal Asim Munir could pull off something like Winston Smith in George Orwell's classic 1984. In Orwell's novel, Smith works at the Ministry of Truth (Minitrue in Newspeak), where his job is to alter historical records and documents so they match the current version of events approved by the Party. He rewrites old newspapers, speeches and reports so that past predictions and statements always appear correct, making it seem like the Party is infallible — a kind of professional reality-revisionist. It's a bit like being a historian, except your main qualification is pretending the past never happened the way you remember it. STORY CONTINUES BELOW THIS AD Munir, a devout Muslim and apparently part-time automotive philosopher, presents himself as an ambassador of truth. In his own world, Munir told a gathering in Tampa, Florida, this week that India was 'a shining Mercedes' while Pakistan was 'a dump truck full of gravel'. Forgive him for thinking Mercedes and Ferrari are one and the same thing. His point, as he explained, was that if this lumbering dump truck rammed the Mercedes, the Mercedes would lose. It's a neat analogy, except that a dump truck is always a dump truck, and a shining Mercedes is always a shining Mercedes. The analogy itself says a lot about the state of progresses made by the two countries that attained Independence on the same night in August 1947. The internet, as expected, did not buy the ticket to this logic ride. Twitter (or X) users quickly noted that Pakistan's dump truck might not even start, or worse, topple over before ever reaching the Mercedes. Some suggested the dump truck was already in the scrapyard, stripped for parts and mortgaged to the IMF, the International Monetary Fund. One user quipped, 'Inka field marshal analogy me bhi apne desh ki beizzati karwa raha hai [even in analogies, Munir manages to humiliate his own country]. And yet, the analogy was honest. Pakistan is economically the dump truck, but not the sturdy, rumbling kind you see at a construction site. This is more like a battered, smoke-belching 1970s relic, bought on credit, with no fuel, and whose driver is constantly in court for loan defaults. From agrarian beginnings to IMF regular When Pakistan was born in 1947, its GDP was dominated by agriculture (53.2 per cent), and a desperate need to industrialise — much like India. Both countries needed industrialisation and shift in economic structure. Pakistan got fertile lands and minerals, with good sea port, and comparatively low population load. By the early 1950s, the two newly independent countries backed five-year plans to guide their path to economic progress. Yet, 78 years later as the two nations gear up to celebrate their respective Independence Days, the most powerful man in Pakistan thinks his country is a 'dump truck' to the 'shining Mercedes' that he described India as. STORY CONTINUES BELOW THIS AD India's growth story is well-documented and debated across organisations and universities. But how did Pakistan became a 'dump truck'? The first few years after Independence, 1947–1950, saw Pakistan's GDP growth limp along at barely over 3 per cent. By the 1950s, the country embraced planning with five-year plans, import regulation and modest growth — manufacturing at 7.7 per cent and agriculture at 1.9 per cent. By the 1960s, under General Ayub Khan, the economy showed some promise — GDP growth of 6.7 per cent, manufacturing booming at 8.51 per cent. But then came the wars, floods and the spectacular self goal of losing East Pakistan in 1971. The dump truck's first major crash. In the 1970s, the socialist experiments of Zulfikar Ali Bhutto nationalised industries — a sort of emulation of India's model — sent GDP growth into a pothole: agriculture grew at just 2.7 per cent, inflation soared to 15 per cent and the deficit ballooned to 8 per cent of GDP. The Mercedes next door, meanwhile, was busy sowing the seeds of its Green Revolution, which would propel it toward self-sufficiency in food production. STORY CONTINUES BELOW THIS AD Golden illusion of the 1980s General Zia-ul-Haq's era (1977–1988) saw an economic uptick. GDP grew at 6.3 per cent, helped by US aid during the Afghan war, remittances and reversal of nationalisation. The dump truck got a new coat of paint and a temporary infusion of diesel—courtesy of Washington. But it was all external money. When the Soviet-Afghan war ended, the aid dried up. Pakistan returned to its default setting of political instability, sanctions and IMF begging bowls. The 1990s under alternating PPP and PML-N governments were a fiscal freefall—GDP growth at just 4.05 per cent, foreign debt tripled, and the country flirted with bankruptcy after nuclear tests in 1998. India, during the same decade, liberalised its economy in 1991, opening the floodgates to investment, technology and global trade. By the time Pakistan was negotiating its nth IMF tranche, India's GDP growth was comfortably cruising at 6 per cent annually. The Musharraf mirage Enter General Pervez Musharraf in 1999 — the other 'golden era' military ruler economists grudgingly acknowledge. Growth peaked at 8.6 per cent in 2004–05, foreign reserves swelled to $9 billion and debt-to-GDP dropped from 100 per cent to 55 per cent. For a fleeting moment, the dump truck almost resembled a serviceable pickup. But the model was fragile which was consumption-driven, import-heavy and utterly dependent on post-9/11 US aid. When that pipeline slowed, so did the economy. By Musharraf's exit, Pakistan was again struggling to finance even its basic fuel imports. Decade of decay (2008–2018) PPP rule after 2008 brought growth down to an average of 4 per cent, agriculture to 2 per cent. Power shortages crippled industries, inflation soared and debt piled on. The PML-N (2013–2018) managed some stability — GDP growth back to 5 per cent, inflation easing — but only by borrowing heavily from the IMF. In contrast, India during this same period emerged as the fastest-growing major economy, riding the tech boom, manufacturing incentives and infrastructure buildouts. By 2018, India's nominal GDP was over $2.7 trillion while Pakistan's was around $314 billion. STORY CONTINUES BELOW THIS AD Khan catastrophe and Covid collapse Imran Khan promised a 'Naya Pakistan' in 2018, but GDP growth crashed from 5.55 per cent in 2017 to just 0.99 per cent in 2019. Debt ballooned by $70 billion in three years and Covid-19 in 2020 shrank the economy by 6.4 per cent, wiping out millions of jobs. India, too, faced a Covid recession, but by 2022 was already back in high-growth mode, aided by digital adoption and strong exports. Pakistan, meanwhile, was queuing outside the IMF office like a regular at a tea stall. The 2023–2024 currency of crisis By 2023, Pakistan's GDP had fallen to $338.4 billion, inflation hit over 29 per cent and foreign exchange reserves hovered near default territory. Debt servicing consumed nearly half the federal budget, with $23 billion due in external repayments for FY2025–26. The Shehbaz Sharif government's $7 billion IMF bailout in late 2024 was a lifeline—but with austerity conditions that would choke growth. Inflation, however, dropped from 29 per cent to around 4.6 per cent in 2024 and reserves improved to $9.4 billion, but these are band-aid metrics. The fundamentals—low productivity, narrow export base and chronic political instability — remain untouched. India's Mercedes moment While Pakistan tries to keep the dump truck from rolling backward, India has officially overtaken Japan as the world's fourth-largest economy in 2025, with GDP at $4.187 trillion. This is not just size — it's trajectory. India is targeting over 7 per cent growth, driven by manufacturing, services, infrastructure and digitalisation. Initiatives like Make in India, the PLI schemes and massive infrastructure spending have turned India into a magnet for global investment. It has weathered demonetisation, a pandemic and global recessions — and still emerged stronger. Pakistan, in comparison, has averaged around 4 per cent GDP growth over the past two decades, punctuated by repeated IMF rescues. The gap between the Mercedes and the dump truck isn't just cosmetic — it's structural, systemic and widening. STORY CONTINUES BELOW THIS AD Why the dump truck analogy backfires Munir's boast that a dump truck can wreck a Mercedes ignores the basic principle of economics — and physics. The Mercedes is faster, more efficient and designed for long-term performance. The dump truck is slow, inefficient, and, in Pakistan's case, running on loans and donor goodwill. If the dump truck 'hits' the Mercedes — be it via war, sanctions or regional instability — it's Pakistan that risks total economic collapse. With imports covering basics like wheat and fuel, and foreign reserves covering barely two months of imports, Pakistan cannot sustain prolonged confrontation. Meanwhile, India, with diversified trade partners, a over $600 billion forex reserve and global investor confidence, would take a hit but recover. The dump truck, however, would be towed straight to the IMF workshop — for its 24th visit since 1958. Ironically, Munir's latest anti-India outbursts followed India publicly stating that it shot down at least five of Pakistan's fighter jets and also damaged F-16s in hangar during Operation Sindoor. Social media is abuzz reminding Munir of what a 'Mercedes' just did to the 'dump truck'. Munir is about loud speeches, empty wisdom The deeper irony is that the Pakistan military has been one of the biggest players in Pakistan's economic mismanagement and the primary beneficiary of Pakistan's budget revenues. The army controls vast business conglomerates in real estate, energy, agriculture and manufacturing. So, when Munir compares Pakistan to a dump truck, he might be advised to check who's been driving it for most of the past 75 years. Spoiler: it's been men in uniform. STORY CONTINUES BELOW THIS AD Upgrade or obsolescence? Pakistan's economic journey since 1947 is a story of missed opportunities, political instability and over-reliance on foreign aid. Even its best growth periods — Ayub in the '60s, Zia in the '80s, Musharraf in the 2000s — were built on temporary external inflows rather than sustainable reforms. India's rise to a $4.1 trillion economy is not just the result of size or luck. It's the cumulative effect of decades of policy shifts, institution building and integration into the global economy. The Mercedes keeps upgrading. The dump truck, meanwhile, is still waiting for the next donor to fill the tank.
