29 Oct 2019

The International Monetary Fund (IMF) and World Bank Group (WBG) have observed a synchronized slowdown in global GDP growth to three per cent in 2019, the lowest since the great global financial crisis of 2008/9.

 According to a press release from Bank of Botswana (BOB), the GDP is down from 3.6 per cent recorded in 2018.

 It says a recent combined IMF/WBG plenary in Washington attended by BOB governor Mr Moses Pelaelo attributed the slow down to among other factors, the broad based deceleration in growth of industrial output and trade as well as low business confidence and weaker investments.

The release however says a modest recovery in output is projected in 2020 with forecast global growth of 3.4 per cent. 

The projected recovery, to be driven mainly by emerging markets and developing economies, remains precarious with elevated downside risks in an environment of policy uncertainty and sustained negative impact of trade and geopolitical tensions against the backdrop of limited policy space, high and rising debt levels and heightened financial vulnerabilities, it says.

It states that maintenance of low interest rates for longer alongside any abrupt shift in risk sentiment could expose financial vulnerabilities while low inflation could become entrenched and constrain prospects for monetary policy to influence economic recovery.

Meanwhile, economic growth in sub-Saharan Africa economy is projected at 3.2 per cent and 3.6 per cent in 2019 and 2020 respectively.

In recognition of prospective developments, the meetings emphasised the need for pre-emptive action and policy reform. "These measures include, inter alia, to cooperatively de-escalate trade and geopolitical tensions, including addressing the roots of dissatisfaction with the global trading system and improving the governance of trade and rolling back tariffs," says the release.

Further, the statement says in emerging markets and and low income countries, monetary policy could be eased to support weakening economic activity where inflation is well anchored.

"For countries with high levels of public debt, the implementation of medium term strategies and fiscal consolidation are necessary and should be carefully calibrated to be growth friendly and safeguard social objectives," it says.

The release says it was noted that financial system vulnerabilities have continued to build and medium term financial stability risks remain elevated. 

In this regard, the statement says highlighted rising corporate debt burden due to sustained low global interest rates; growth in riskier and more illiquid assets held by institutional investors.

The release says there is need globally for well-tailored structural reforms to raise potential output and productivity and respond adequately to climate change. It also says it is necessary to build resilience to economic shocks and natural disasters and maintain policies to achieve balanced inclusive growth; thus fair and equitable economic and social outcomes.

The meetings emphasised the importance of maintaining globally cooperative solutions, including completing and implementing the financial regulatory reform agenda.

In view of the global challenges and emerging developments, it was noted that, consistent with its mandate, the IMF policy agenda will include strengthening frameworks for global cooperation, enhance resilience to address external shocks and macroeconomic consequences of climate change, natural disasters and cyber risks and developing an integrated policy framework to achieve macroeconomic policy, resilience towards sustained growth and stability.

The release says Mr Pelaelo also attended several briefings and seminars focusing on various issues such as climate change and central banks, digital strategies, fiscal and financial sector governance, public debt, and financial literacy.

“Issues specific to the bank and the economic and policy developments in Botswana were discussed bilaterally with relevant departments of the IMF,” it states.

The next IMF and the WBG meetings will be held in April 18 next year. ends