IMF spring meetings will be sanguine on the surface

Dig deeper to find handwringing and unresolved issues

The world’s finance ministers and central bank governors are descending on Washington DC from 10-16 April for the International Monetary Fund/World Bank spring meetings. The city’s economy will be richer for it. The forecast is for warm weather – blame Mother Nature rather than delegate orations.

Ministers and governors will focus on the global economic outlook. While they may project an air of sanguinity, there will be handwringing behind the scenes.

The 2023 outlook has improved over the last few months. There is greater resilience in the US and Europe than previously anticipated, and China’s reopening will boost growth. Early fears surrounding massive financial instability in the wake of turbulence at Credit Suisse and Silicon Valley Bank have not materialised. The world has weathered many shocks in past years. These themes were emphasised by US Treasury Under Secretary Jay Shambaugh in a discussion with OMFIF.

But, as stated by IMF Managing Director Kristalina Georgieva, global growth in 2023 will be down relative to 2022 and below 3%. This is hardly worth crowing about. Aggregate potential growth is falling. Enormous risks and unknowns abound.

The real economy impact of US rate hikes is unclear. While deposit flows are steadying in the immediate aftermath of SVB, credit may contract more sharply, pulling US growth further down. Risks in commercial real estate lending will intensify concerns. Recent data suggest an economic slowdown. Meanwhile, labour markets remain healthy alongside persistent stubbornness in core inflation. Many economists have long expected a recession but keep pushing its timing out. The markets anticipate cuts by the Federal Reserve, but that’s not in the Fed’s dot plot.

European indicators point to a significant slowdown, though this is a step up from earlier recessionary expectations. Inflation remains sticky and the European Central Bank has adopted a tough anti-inflationary posture, with hawks seizing the narrative. Japan is debating the future of yield curve control, and its abandonment could disrupt global markets.

China raises question marks. The growth target of ‘around 5%’ from the National People’s Congress in October was seen as modest. Others expect ‘revenge’ spending to boost output growth towards 6%. But consumers may be cautious amid reopening and a weak social safety net. Housing and local finances are strained, and the government is wary about stimulus given excess economy-wide leverage.

The World Bank may take centre stage. The US choice for World Bank president, Ajay Banga, is firmly on track for nomination. The US and others are pushing to increase the bank’s focus on global public goods such as fighting climate change, dealing with pandemics and shoring up fragile countries. They want the bank to use its balance sheet more flexibly to expand headroom without a capital increase, and recognise that global public goods lending may generate spillovers necessitating evolution in the bank’s mission, while adhering to its core poverty alleviation mandate.

Steps taken this week will be viewed as a down payment on further action. The jury is out on their effectiveness. Further, as Shambaugh told OMFIF, one task of proponents is to persuade others that the US is not trying to convert the World Bank into a green bank.

Low-income country debt distress remains a hot topic, especially the G20 common framework’s poor performance in advancing debt relief. Why should any finance minister sign their country up for the framework when China and private creditors are dragging their heels in providing financing assurances, let alone forging concrete debt relief deals? The IMF has launched a roundtable, a useful effort to bring those involved together. But meaningful progress largely depends on political decisions in Beijing, not process and technical discussions. Meanwhile, Sri Lanka and Pakistan – not low-income countries – face similar nettlesome debt relief challenges.

The IMF may discuss its longstanding accord that a quota review should be completed this year. But given the need for China’s share to rise and for others, such as in Europe, to decline amid tensions over LIC debt and between the US and China, chances of a deal are probably non-existent. Georgieva will also make a concerted plea for more subsidy resources to keep LIC lending at zero – this worthy plea merits serious attention.

Two nettlesome country issues – Ukraine and Argentina – won’t flare up, having just been put to bed for now. The IMF finally forged ahead with an admittedly risky Ukraine programme which will help support stabilisation, lend impetus to reform and mobilise non-inflationary finance. Argentina just received another IMF tranche. Given 100% inflation and countless exchange rates, the horrid programme seems cynically aimed at simply refinancing IMF exposure, with the Fund hoping elections later this year may generate reform impetus.

There will be much to talk about this week. Don’t expect significant advances.

Mark Sobel is US Chair of OMFIF.

Image source: IMF

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