Tariffs aren't answer to imbalances: IMF
Global current account balances widened sharply in 2024, reversing a narrowing under way since the global financial crisis of 2008-2009, the International Monetary Fund (IMF) said on Tuesday, warning that tariffs were not the answer.
In its annual External Sector Report, which assesses imbalances in the 30 largest economies, the IMF noted that external surpluses or deficits were not necessarily a problem but could cause risks if they became excessive.
It said prolonged domestic imbalances, continued fiscal policy uncertainty, and escalating trade tensions could deteriorate global risk sentiment and elevate financial stress, hurting both debtor and creditor nations.
The report took aim at US President Donald Trump's imposition of higher import tariffs against nearly every trading partner, which his administration says is aimed at increasing revenues and righting longstanding trade deficits.
"A further escalation of the trade war would have significant macroeconomic effects," it said, noting that higher tariffs would reduce global demand in the short term and add to inflationary pressures through rising import prices.
Rising geopolitical tensions could also trigger shifts in the international monetary system (IMS), which in turn could undermine financial stability, it said.
This year's report, based on 2024 data, showed the widening of global current account balances was due largely to increased excess balances in the world's three largest economies – the US, China and the euro area.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Express Tribune
2 hours ago
- Express Tribune
US, China to resume tariff talks in effort to extend truce
US and Chinese flags and a "tariffs" label are seen in this illustration created on April 10, 2025. Photo: Reuters Listen to article Senior US and Chinese negotiators meet in Stockholm on Monday to tackle longstanding economic disputes at the centre of the countries' trade war, aiming to extend a truce keeping sharply higher tariffs at bay. China is facing an August 12 deadline to reach a durable tariff agreement with President Donald Trump's administration, after Beijing and Washington reached a preliminary deal in June to end weeks of escalating tit-for-tat tariffs. Without an agreement, global supply chains could face renewed turmoil from duties exceeding 100%. The Stockholm talks, led by US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng, take place a day after European Commission President Ursula von der Leyen meets Trump at his golf course in Scotland to try to clinch a deal that would likely see a 15% baseline tariff on most EU goods. Also Read: Israel announces daily pauses in Gaza fighting as aid airdrops begin Trade analysts on both sides of the Pacific say the discussions in the Swedish capital are unlikely to produce any breakthroughs but could prevent further escalation and help create conditions for Trump and Chinese President Xi Jinping to meet later this year. Previous US-China trade talks in Geneva and London in May and June focused on bringing US and Chinese retaliatory tariffs down from triple-digit levels and restoring the flow of rare earth minerals halted by China and Nvidia (NVDA.O), opens new tab H20 AI chips and other goods halted by the United States. So far, the talks have not delved into broader economic issues. They include US complaints that China's state-led, export-driven model is flooding world markets with cheap goods, and Beijing's complaints that US national security export controls on tech goods seek to stunt Chinese growth. "Stockholm will be the first meaningful round of US-China trade talks," said Bo Zhengyuan, Shanghai-based partner at China consultancy firm Plenum. Trump has been successful in pressuring some other trading partners, including Japan, Vietnam and the Philippines, into deals accepting higher US tariffs of 15% to 20%. He said there was a 50-50 chance that the US and the 27-member European Union could also reach a framework trade pact, adding that Brussels wanted to "make a deal very badly". Read: Six killed, scores injured in Indian temple stampede Two of Trump's top trade officials, Commerce Secretary Howard Lutnick and US Trade Representative Jamieson Greer, will attend the Scotland talks and then travel to Stockholm. Analysts say the US-China negotiations are far more complex and will require more time. China's grip on the global market for rare earth minerals and magnets, used in everything from military hardware to car windshield wiper motors, has proved to be an effective leverage point on US industries. Trump-Xi meeting? In the background of the talks is speculation about a possible meeting between Trump and Xi in late October. Trump has said he will decide soon whether to visit China in a landmark trip to address trade and security tensions. A new flare-up of tariffs and export controls would likely derail any plans for a meeting with Xi. "The Stockholm meeting is an opportunity to start laying the groundwork for a Trump visit to China," said Wendy Cutler, vice president at the Asia Society Policy Institute. Bessent has already said he wants to work out an extension of the August 12 deadline to prevent tariffs snapping back to 145% on the US side and 125% on the Chinese side. Still, China will likely request a reduction of multi-layered US tariffs totaling 55% on most goods and further easing of US high-tech export controls, analysts said. Beijing has argued that such purchases would help reduce the US trade deficit with China, which reached $295.5 billion in 2024. Also Read: Drone debris disrupts trains, suspends flights in Volgograd China is currently facing a 20% tariff related to the US fentanyl crisis, a 10% reciprocal tariff, and 25% duties on most industrial goods imposed during Trump's first term. Bessent has also said he would discuss with He the need for China to rebalance its economy away from exports toward domestic consumer demand. The shift would require China to put an end to a protracted property crisis and boost social safety nets to encourage household spending. Michael Froman, a former US trade representative during Barack Obama's administration, said such a shift has been a goal of US policymakers for two decades. "Can we effectively use tariffs to get China to fundamentally change their economic strategy? That remains to be seen," said Froman, now president of the Council on Foreign Relations think-tank.
Express Tribune
9 hours ago
- Express Tribune
Dar touts inflation dip, better global relations
Listen to article Deputy Prime Minister and Foreign Minister Ishaq Dar said Pakistan has emerged from diplomatic isolation and is witnessing economic recovery, highlighting a sharp drop in inflation and growing international engagement. Speaking to the Pakistani community at the Consulate General in New York on Saturday, Dar said, 'We have made considerable progress, especially in political and economic fields, in the past three years, despite heavy odds – we are indeed a resilient nation.' Dar, who returned earlier in the day from Washington, said his meeting with US Secretary of State Marco Rubio was held in a cordial atmosphere and covered key global and regional matters. 'The meeting went very well,' he said, expressing hope for stronger bilateral ties. Present at the event were Pakistan's Ambassador to the United States Rizwan Saeed Sheikh, Permanent Representative to the UN Ambassador Asim Iftikhar Ahmad, and Consul General Aamir Ahmed Atozai. Dar told the audience that Pakistan was no longer isolated and now enjoys support from many nations, evidenced by recent high-level meetings with officials from China, the US, and others. He pointed to the reduction of inflation from 40% to 2.4% as of January 2025 as proof of government effectiveness. The DPM/FM said investor confidence had returned following the successful conclusion of the IMF programme, a recovery acknowledged by international credit agencies. He reaffirmed the government's ambition to join the G20. Dar credited PML-N leader Nawaz Sharif for steering the federal and Punjab governments, calling him an able statesman. He also briefed the community on the Special Investment Facilitation Council (SIFC), which aims to ease investment in key sectors. He announced that work was under way to resume PIA flights to New York, following the restoration of routes to Europe and the UK. Appreciating the Pakistani-American community's role, Dar acknowledged their contributions to Pakistan and the US, praising their unity during past tensions with India. He recounted the shooting down of six Indian aircraft by the Pakistan Air Force and praised the leadership of Chief of Army Staff Field Marshal Syed Asim Munir. Dar noted Pakistan's presidency of the UN Security Council—secured with support from 182 countries—and the unanimous adoption of a Pakistan-sponsored resolution on peaceful settlement of disputes. He reaffirmed Pakistan's commitment to diplomacy, peaceful regional ties, and its outreach to Afghanistan for trade and rail connectivity, while expecting Afghan soil not to be used for terrorism. On Aafia Siddiqui's incarceration, he said efforts for her release were ongoing through diplomatic channels. Ambassador Sheikh also addressed the community, noting Pakistan's improved global image following the armed forces' role in national defence. He urged the diaspora to invest in Pakistan, saying a strong economy is vital for national security.
Express Tribune
19 hours ago
- Express Tribune
Energy-starved Pakistan's solar rush
Solar panels are now seen installed on the rooftops of houses across the country. Photo: AFP Pakistanis are increasingly ditching the national grid in favour of solar power, prompting a boom in rooftop panels and spooking a government weighed down by billions of dollars of power sector debt. The quiet energy revolution has spread from wealthy neighbourhoods to middle- and lower-income households as customers look to escape soaring electricity bills and prolonged power cuts. Down a cramped alley in Karachi, residents fighting the sweltering summer heat gather in Fareeda Saleem's modest home for something they never experienced before — uninterrupted power. "Solar makes life easier, but it's a hard choice for people like us," she says of the installation cost. Saleem was cut from the grid last year for refusing to pay her bills in protest over enduring 18-hour power cuts. A widow and mother of two disabled children, she sold her jewellery — a prized possession for women in Pakistan — and borrowed money from relatives to buy two solar panels, a solar inverter and battery to store energy, for Rs180,000. As temperatures pass 40 degrees Celsius (104 degrees Fahrenheit), children duck under Saleem's door and gather around the breeze of her fan. Mounted on poles above homes, solar panels have become a common sight across the country of 240 million people, with the installation cost typically recovered within two to five years. Making up less than two percent of the energy mix in 2020, solar power reached 10.3 percent in 2024, according to the global energy think tank Ember. But in a remarkable acceleration, it more than doubled to 2 4 percent in the first five months of 2025, becoming the largest source of energy production for the first time. It has edged past gas, coal and nuclear electricity sources, as well as hydropower which has seen hundreds of millions of dollars of investment over the past decades. As a result, Pakistan has unexpectedly surged towards its target of renewable energy, making up 60 percent of its energy mix by 2030. Dave Jones, chief analyst at Ember, told AFP that Pakistan was "a leader in rooftop solar". Soaring fuel costs globally, coupled with demands from the International Monetary Fund to slash government subsidies, led successive administrations to repeatedly hike electricity costs. Prices have fluctuated since 2022 but peaked at a 155-percent increase and power bills sometimes outweigh the cost of rent. "The great solar rush is not the result of any government's policy push," Muhammad Basit Ghauri, an energy transition expert at Renewables First, told AFP. "Residents have taken the decision out of clear frustration over our classical power system, which is essentially based on a lot of inefficiencies." Pakistan sources most of its solar equipment from neighbouring China, where prices have dropped sharply, largely driven by overproduction and tech advancements. But the fall in national grid consumers has crept up on an unprepared government burdened by $8 billion of power sector debt, analysts say. Pakistan depends heavily on costly gas imports, which it sells at a loss to national energy providers. It is also tied into lengthy contracts with independent power producers, including some owned by China, for which it pays a fixed amount regardless of actual demand. A government report in March said the solar power increase has created a "disproportionate financial burden onto grid consumers, contributing to higher electricity tariffs and undermining the sustainability of the energy sector". Electricity sales dropped 2.8 percent year-on-year in June, marking a second consecutive year of decline. Last month, the government imposed a new 10-percent tax on all imported solar, while the energy ministry has proposed slashing the rate at which it buys excess solar energy from consumers. "The household solar boom was a response to a crisis, not the cause of it," said analyst Jones, warning of "substantial problems for the grid" including a surge during evenings when solar users who cannot store energy return to traditional power. The national grid is losing paying customers like businessman Arsalan Arif. A third of his income was spent on electricity bills at his Karachi home until he bought a 10-kilowatt solar panel for around 1.4 million rupees (around $4,900). "Before, I didn't follow a timetable. I was always disrupted by the power outages," he told AFP. Now he has "freedom and certainty" to continue his catering business. In the eastern city of Sialkot, safety wear manufacturer Hammad Noor switched to solar power in 2023, calling it his "best business decision", breaking even in 18 months and now saving 1 million rupees every month. The cost of converting Noor's second factory has now risen by nearly 1.5 million rupees under the new government tax.
