EDITORIAL: Ever since the Trump Administration launched its ill-conceived Liberation Day tariffs in a misguided bid to reduce US’s trade deficits with its trading partners, it has become abundantly clear that not only has this policy unleashed broad-based economic turmoil by triggering stock market meltdowns, widespread business panic, and volatility in currency and bond markets, its damaging repercussions are likely to heighten risks to the global financial system that will persist well into the future. The stop-start nature of the tariff roll-out, marked by a criminal absence of planning, foresight and even the most rudimentary economic and mathematical reasoning has deepened uncertainty on a global scale, shaken investor confidence and intensified economic vulnerabilities worldwide. This reality has now come into sharper focus with the IMF’s latest Global Financial Stability Report, released on April 22, which explains how US trade tariffs have heightened volatility across global markets by sparking “a bout of policy uncertainty”, a situation worsened by retaliatory actions from other countries, particularly China. As a result, the IMF has downgraded its global growth forecast to 2.8 percent for 2025, down from its earlier January estimates of 3.3 percent. Following the tariff announcement, there was a sharp re-pricing of risk assets and increased turbulence across stock, currency and bond markets globally. The IMF notes, however, that despite this turmoil, valuations in key segments of the equity and corporate bond markets remain elevated. This suggests that if the global economic outlook worsens further, these valuations could face even more downward pressure, posing a significant risk to emerging and frontier markets, which may experience weaker growth and increased capital outflows. The Fund has also highlighted the susceptibility of countries with significant government debt to swings in sovereign bond markets. This leaves governments particularly vulnerable to abrupt increases in borrowing costs, with the IMF warning that “investor concerns about public debt sustainability” could amplify economic instability in fiscally strained economies, making it more difficult for them to service their debts. In this context, the Fund’s recommendations for emerging and developing economies to tackle domestic policy and structural imbalances, preserve sufficient fiscal policy space and ensure that public debt remains on a sustainable trajectory are more critical than ever to safeguard long-term economic stability. Furthermore, the IMF has noted that uncertainty over future policy directions of governments the world over, along with geopolitical shocks, like military conflicts, is likely to prompt companies around the world to scale back spending, as many firms are likely to “pause, reduce investment, and cut purchases”. Similarly, financial institutions will also likely tighten credit supply to businesses. All of this, combined with reduced international cooperation amid a climate of global political and economic fragility, has triggered a “negative demand shock” that is sure to weigh on economic activity. In fact, scaled-back international cooperation is going to be a major hurdle towards building a more resilient global economy, with the Trump Administration’s cuts to overseas aid also playing a seminal role in undermining multilateral efforts to address global challenges, like poverty alleviation, climate change and maintaining economic stability in vulnerable regions. It is unsurprising then that given the backdrop of rising trade tensions, financial market fluctuations, unpredictable economic policy shifts and weakening investor sentiments, Pakistan’s growth outlook has also dimmed, with the IMF cutting its FY25 GDP growth estimate to 2.6 percent from the earlier January projection of three percent. As the world grapples with the fallout of reckless trade policies and mounting economic fragility, coordinated global action, disciplined fiscal governance and a return to evidence-based policymaking remain imperative. Worryingly, however, all of these seem in dangerously short supply, portending further instability ahead as geopolitical tensions and economic nationalism continue to trump sound policy. Copyright Business Recorder, 2025