WITH the spectre of double-dip recession looming, global economic leaders gathered in Tokyo for the World Bank-IMF annual meetings last week to debate ways of dealing with depressed growth and weak governments. Advanced economies are struggling to emerge from the financial crisis amid rising social discontent. Huge anti-austerity demonstrations in Europe regularly make headlines. In developing countries, where the situation is more complex with deeper inadequacies and insufficient means to cope, the global crisis has further curtailed options on development issues. The IMF forecasts a 3.3 per cent global output growth, down from 5.1 per cent in both 2010 and 2011 leading to projections of less than two per cent global growth in the current year. Hopes of expansion during 2012 were clouded by a sense of risk and fear at the gathering of finance ministers in Tokyo.

IMF chief Christine Lagarde, responding to the needs of changing times, hinted at revising her organisational position to deal with the fiscal stress. She endorsed findings of a recent study that Brussels and the IMF have underestimated the impact of austerity measures on growth. She said that fiscal policy needs to be appropriately calibrated to be as growth friendly as possible. How would the IMF change of heart play out for Pakistan that, it seems, could soon be knocking at its door for credit? There are fears that higher spending in an election year and depressed resource mobilisation and slow growth will widen the income-expenditure gap. Besides, the slowdown in remittances and export earnings against import payments and debt retirement is building pressure on foreign exchange reserves that, already depleted, could touch new lows. If leveraged properly the change in IMF outlook may improve prospects of striking a better deal with the key donor if the government decides to seek its support.