The IMF and World Bank’s spring meetings will focus on the prospects for a soft landing after years of global economic turbulence. But major challenges remain, including growing climate finance needs and persistently high global debt levels.
The International Monetary Fund (IMF) and World Bank, known as the Bretton Woods institutions, were created to foster global economic development and stability. But in recent years, their model has been tested by the COVID-19 pandemic, climate change, and rising geopolitical tensions. Finance ministers and central bank governors from around the world will meet next week at the lenders’ spring meetings in Washington as calls for reform to both the IMF and World Bank grow louder.
What’s on the agenda?
When the IMF and World Bank hosted the annual meetings last spring, they warned of several global crises accelerated by the COVID-19 pandemic, including persistently high inflation, mounting debt levels, and worries of a global recession. Those concerns will remain on the agenda at the 2024 spring meetings, but the tone of conversation has shifted to cautious optimism that the global economy will achieve a soft landing, in which it stabilizes without a significant recession. The lenders will also discuss:
Bringing down inflation. Central banks in many of the world’s advanced economies walk a tightrope; they have to keep interest rates high to rein in inflation and achieve a soft landing, but they risk economic contraction if they keep rates high for too long.
Addressing global debt. The IMF has raised concerns that the global economy is now stabilizing with high debt and low growth in several emerging economies, including China. Indeed, global debt levels are still higher than any prepandemic year at more than $300 trillion, potentially making future shocks more expensive. Low growth can also spur a devastating cycle for developing countries, as it limits their ability to borrow from international capital markets, reducing the amount they can invest in programs that stimulate growth.
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Funding climate finance. The World Bank is focused on doing more to help prevent diseases and fund climate mitigation and adaptation efforts. The bank is almost certain to require more capital to carry out this mission, especially as climate change becomes increasingly costly for low-income countries.
Costly geopolitics. Both institutions will address how mounting global tensions, including in the Middle East and Taiwan Strait, could interrupt what now seems to be a better-than-expected economic trajectory. Those tensions could threaten major global supply chain disruptions to crucial global goods such as oil and semiconductors.
The IMF recently forecast that the global economy is approaching a soft landing. What’s behind the rosy outlook?
A soft landing was considered impossible a year ago in the face of soaring inflation and high interest rates. However, most experts now believe that it is within reach as inflation stabilizes with persistent growth in the United States and Europe.
However, both economic and geopolitical risks remain. Experts thus say a soft landing is not yet assured, but that if it is achieved it will be a result of both good policy (such as effective interest rate management by central banks) and good luck (such as the reduction in price pressures from unsnarling supply chains and global growth’s better-than-expected resilience).
Will there be movement on any proposed reforms?
Criticism of the Bretton Woods institutions—including that they do too little to address climate change and reduce debt in developing countries—has increased in recent years as global challenges escalate. Meanwhile, alternative sources of financing have emerged, including China, whose lending for development projects abroad between 2010 and 2020 exceeded the World Bank’s total lending since its inception (though China has scaled back its lending in recent years).
However, experts believe that there will most likely not be any significant movement on major reform at the spring meetings, including on efforts to increase the IMF’s and World Bank’s lending capacities. Those reforms would require legislative approval in IMF and World Bank shareholder countries—including the United States and China—which can be a drawn-out process. World Bank President Ajay Banga has argued that the keys to unlocking the IMF’s and World Bank’s potential are therefore more in the hands of the institutions’ shareholders than the institutions themselves.
The IMF and World Bank also continue to command considerable resources with broad international support. During the pandemic, the IMF lent more than $30 billion without interest through its Poverty Reduction and Growth Trust to help maintain stability in low-income countries. Meanwhile, the World Bank’s ability to mobilize funds for development and green energy is still central to the goals of many low- and middle-income countries; the bank directed $39 billion—more than any other institution—toward climate finance in fiscal year 2023.
