Heading into the World Bank and International Monetary Fund’s Spring Meetings in Washington next week, there’s not a lot of good news on the global economic front. Russia is battering Ukraine, economic growth is slowing, inflation is hot, and supply chains remain disrupted. The multiple shocks are threatening to worsen poverty and set back development gains.
As Center for Global Development head Masood Ahmed told journalists Thursday, there are “a whole range of crises all coming together.”
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The meetings are taking place in a hybrid format. A number of high-level dignitaries and their entourages are expected in Washington for in-person events, though much of those will be behind closed doors. So, what themes are we watching this year?
“The immediate priorities are to end the war in Ukraine, confront the [COVID-19] pandemic, and tackle inflation and debt,” said IMF Managing Director Kristalina Georgieva ahead of the meetings.
Let’s unpack these, along with the longer-term challenges:
1. Ukraine: the war overshadowing everything. It’s not officially on the agenda, but the conflict in Ukraine is everywhere — not least because of the sheer scale of devastation in the country. The Russian invasion is dragging down global growth, from Africa to Asia and beyond.
On Tuesday, World Bank President David Malpass said his institution is “preparing a surge crisis response that will provide focused support for developing countries.” But, he noted, Ukraine is not the only war-torn nation; at least 39 countries — including Afghanistan and Syria — are experiencing fragility and conflict, which risk spilling over or are already having repercussions beyond national borders.
2. Who can help food price shocks? Even before Russia started its latest attack on Ukraine, energy and food prices were on the rise worldwide and economic growth, especially in lower-income nations, was at risk. The price moves have only intensified since then and are looking more sustained, raising alarm bells about social unrest around food insecurity. The developing world, and lower-income people everywhere, will feel the burden most, as food makes up a larger portion of their spending.
“For the first time in many years, inflation has become a clear and present danger for many countries around the world,” Georgieva said in her curtain-raiser speech.
“Much of our work next week during the IMF and World Bank Spring Meetings will be centered on how we can better support developing countries as they weather these shocks, particularly as they are still recovering from COVID-19,” U.S. Treasury Secretary Janet Yellen said Wednesday at the Atlantic Council.
3. The pandemic is still here. Not only is the pandemic not over — vaccination rates in the world’s lowest-income countries are limited and causing concern at the World Health Organization — but its effects are still with us. Lockdowns in China are acting as a further drag on global growth.
Many economies have not returned to pre-pandemic growth paths, and the World Bank has warned that sub-Saharan Africa’s recovery will actually “decelerate” this year because of the global economic slowdown, supply chain chaos, and a host of other problems. And then there’s debt.
Long-term pandemic fight will require $10B annually, IMF says
The world needs to shift from a COVID-19 emergency response to a longer-term plan for pandemics, IMF says. The price tag for doing so is $15 billion up front and $10 billion annually in future years.
4. Can there be a deal on debt before time runs out? Warnings from both IMF and the World Bank could not be clearer. Some 60% of the lowest-income countries are facing the prospect of debt distress or are already in crisis. Sri Lanka is a bellwether and starting to default on its debt, according to Fitch Ratings. There are concerns that a dozen countries are staring down the barrel of a similar fate over the next 12 months.
According to Malpass, “developing country debt has risen sharply to a 50-year high — at roughly 250% of government revenues.” Countries facing this predicament are unable to borrow at affordable rates to invest in their development and are increasingly spending their money on debt servicing payments. This will only get worse amid rising interest rates worldwide, as central banks seek to tackle inflation. With their fiscal space diminished, governments will struggle to support the poor in coping with the higher cost of feeding their families.
This is one key area where global cooperation will be needed, especially from the G-20 group of industrial and emerging-market nations. The old club of the G-7 — composed of mostly wealthy Western nations — cannot fix the debt problems alone, as these countries are no longer the main lenders.
5. Is global cooperation still a thing? Sigh.
Well, we’ll have to see how meetings of G-20 ministers go, amid disputes with Russia over the war and Moscow’s very presence at the gatherings. Yellen had issued veiled threats that the U.S. would boycott the meetings if Russia participated. Next week will likely be “messy” on the political front, one former government official remarked.
Without the G-20 fully on board with a debt deal — one that includes China and the private sector — there is little hope for solving such issues before they metastasize.
Ahmed said he worries the G-20 is part of a multilateral system that is increasingly unable to respond to crises. The group was meant to be the place “where a lot of these issues got sorted out. … [But] today it’s very hard to see how it is going to function, not just this year but going forward.”
“For the first time in many years, inflation has become a clear and present danger for many countries around the world.”
— Kristalina Georgieva, managing director, IMF6. Are we forgetting climate change? No. It remains a key “macro-critical” threat, according to IMF and many private sector economists. And there are sessions planned on this topic, particularly with the World Bank due to announce details on its Paris climate accord alignment later this year and with the next United Nations Climate Change Conference on the horizon in Egypt.
The challenge of moving the world toward net-zero carbon dioxide emissions while still helping countries grow their economies and reduce poverty is no small feat. There is no expectation of a grand deal here.
7. Look out for pledges on the new trust. Just before the meetings were set to kick off, IMF’s board approved the creation of the Resilience and Sustainability Trust — marking the first time that the institution has a mechanism for financing long-term development.
The catch is that donors will have to seed the trust with money — likely from the Special Drawing Rights issuance last year, which heavily favored wealthy nations. The U.S. is currently not going to give any of its SDRs, so it will be up to other big players to get the fund off the ground. The outcome of the runoff in France’s presidential election will likely be crucial, as incumbent Emmanuel Macron has been a big fan of rechanneling SDRs.