Global finance ministers and central bank governors are gathering in Washington DC for the International Monetary Fund-World Bank annual meetings. Behind the scenes, trepidation will rule.
As usual, participants will focus on the global economic outlook. On balance, forecasts for roughly 3% aggregate global growth this year will remain little changed. The US economy is outperforming, Germany’s stagnation may pull Europe down and the Fund’s Japan forecast has been higher than many private forecasters.
China’s economy is languishing despite recent policy actions, and while the monetary andequity market measures may help put a floor under weak growth, the outlook for whether fiscal policy will provide needed stimulus remains murky. Key details about stimulus terms and amounts have yet to be revealed. Regardless, China generally hits its target, one way or the other. The meetings will welcome falling advanced economy inflation along with reductions in interest rates, while rightly expressing concerns over fiscal indiscipline.
On the agenda
The IMF will address several operational issues. It will justifiably take some satisfaction on low-income country debt, citing progress with Zambia and Ghana under the common framework. China is becoming more forthcoming on debt issues, but the amounts and terms of its lending remain opaque and timetables for reaching deals face uncertainty.
Advanced economies eliminated official debts two decades ago pursuant to the Multilateral Debt Relief Initiative. The ensuing fiscal space was gobbled up by low-income country borrowing (often not productively) including from China. Now, even after receiving ‘relief’, LICs often find themselves saddled with excess debt. Sri Lanka though not a LIC, is emblematic of a country that will suffer post-restructuring under an enormous debt overhang, which IMF debt sustainability analysis unfortunately countenanced.
The IMF board has decided to significantly reduce surcharges, while ongoing surcharge income will further underpin the Fund’s capital and provide a large increase in subsidy resources for IMF low-income country lending. It’s a welcome, good and fair package – recognising that even if the IMF has reached its capital targets, it is still a financial organisation and it is sensible to charge higher rates on large-scale and high-risk lending. The use of ongoing surcharge income to boost subsidy resources for concessional IMF lending to LICs especially merits praise. LIC lending is central to the IMF’s operations, with more than 30 programmes. The subsidy resources are vitally needed to create a larger, more robust self-sustained lending model.
Quota realignment
In 2023, the IMF agreed on a 50% quota increase, correspondingly decreasing other lending pots. Domestic approvals are due in November. The US will again unfortunately be late; Congress should provide approval as soon as possible.
The IMF board must work to deliver, by mid-2025, possible approaches to guide a quota realignment including a new quota formula.  Progress isn’t expected any time soon. Quota shares determine voting power; those must add up to 100%. Europe is overweight but in denial. Several East Asian countries are underweight (India, Indonesia, Vietnam; China hugely). Many other emerging markets and developing countries believe their shares should rise but the case is questionable. Given US politics and tensions with China, it is difficult to imagine how the US could back boosting China’s share, even if a higher Chinese share is fully justified. Blocking one will undermine multilateralism and foster regionalism. Protracted squabbling over the quota formula may become a façade for delaying tactics.
Regardless, with the focus on securing domestic approvals for last year’s quota deal by November, progress on quota realignment is not an annual meeting issue.
Developmental and geopolitical challenges
The World Bank will emphasise key developmental challenges consistent with its highfalutin vision of eliminating extreme poverty and boosting shared prosperity on a livable planet. These challenges are also consistent with the imperative of achieving the United Nations’ 17 sustainable development goals and 169 associated targets, tackling debt woes, domestic resource mobilisation, pandemic preparedness and others.
Progress on the Evolution Roadmap in freeing up resources for more multilateral development bank lending, including for climate, will be welcomed with exhortations to do more. A key operational challenge is whether a large and robust International Development Association 21 package can be implemented, but that is more an issue for the IDA pledging session in December than for the annual meetings.
Notwithstanding the seeming calm, delegates behind the scenes will be filled with trepidation, aghast at mounting global risks. Could Donald Trump win the presidency and what might that mean for multilateralism, interdependence and the US’ role in the world? Will tensions in the Middle East further escalate and drag the US and Iran into the fray? Might oil prices explode or will the recent downturns be sustained? Is there any end to Russia’s brutal war against Ukraine? Will the US and China be able to keep a lid on their tensions, and could Taiwan get thrown into the mix? Will fiscal indiscipline in major economies jeopardise global growth and financial stability, let alone official aid flows?
To top it off, financial markets seem stunningly complacent in the face of these daunting risks.
Mark Sobel is US Chair of OMFIF.
Image credit: World Bank Photo Collection
