The agenda is not necessarily getting shorter. At last year’s spring meeting of the International Monetary Fund (IMF) and the World Bank, the focus was still on the corona pandemic and the high energy and food prices resulting from the Russian war of aggression against Ukraine. The guns are not silent to this day. There is still no talk of price stability. The turnaround in interest rates poses major challenges for both industrialized and emerging countries. In addition, reeling banks on both sides of the Atlantic are affecting the stability of the financial sector.
So the global financial and development elite are unlikely to run out of topics this week in Washington. Every spring, central bankers, ministers and other representatives from more than 180 countries meet in the US capital.
A central topic of discussion in the development area will be the reform of the World Bank. Lenders are pushing for restructuring to address global challenges like climate change. Federal Development Minister Svenja Schulze (SPD), who also represents Germany as governor at the World Bank, is also traveling to Washington.
At the same time, the G7 and G20 finance ministers are meeting for consultations. According to a spokesman for the authority, the delegation of the Federal Ministry of Finance (BMF) includes Finance Minister Christian Lindner and Parliamentary State Secretary Florian Toncar (both FDP).
According to sources in the Ministry of Finance, the focus of the content should be the current situation in the world economy, further support for Ukraine and the debt problem in the developing and emerging countries.
Forecast for global economy clouded
On Tuesday, the IMF presented its global economic outlook for the most important regions of the world. Even before the summit, IMF President Kristalina Georgieva made it clear that the signs point to slower growth. “We assume that global growth will be around three percent in the next five years,” said the economist on Thursday. This is the lowest medium-term forecast for more than 30 years and is well below the 6.1 percent growth in 2021 and 3.4 percent last year.
While India and China account for half of the growth forecast for 2023 according to the IMF, growth is slowing in almost all industrialized nations. The situation in the poorer regions of the world is also getting worse, and poverty and hunger could increase again. Bundesbank President Joachim Nagel intends to comment on the state of the global economy in Washington on Thursday.
With geopolitical tensions rising and inflation still high, a robust recovery remains elusive.
Kristalina Georgieva, IMF President
“With geopolitical tensions rising and inflation still high, a robust recovery remains elusive,” Georgieva said in advance. Russia’s invasion of Ukraine and mutual allegations of espionage have further soured already strained US-China relations. According to calculations by the IMF, increasing fragmentation of world trade could cost up to seven percent of global economic output.
Financial aid to Ukraine
According to BMF circles, the most important key to rapid economic recovery is an immediate end to the Russian war of aggression. More than a third of Ukraine’s population has been displaced, and much of the country’s infrastructure has been destroyed. The national debt skyrocketed, the budget deficit ballooned. The Ukrainian economy will shrink by around 30 percent in 2022.
In order to support economic stabilization and accelerate the reconstruction of Ukraine, the IMF approved a new financing program at the end of March. The Monetary Fund approved funding arrangements for Ukraine worth $15.6 billion through 2027.
A ministerial-level meeting will be held in Washington on Wednesday to discuss further needs for economic aid to Ukraine and its reconstruction. In addition to the heads of the World Bank and IMF, the Ukrainian Prime Minister Denys Schmyhal is also expected to take part.
Better refinancing conditions for poorer countries
The war in Ukraine has also exacerbated the inflation crisis around the world and slowed down economic recovery in poorer regions of the world. The situation was already tense as a result of the corona pandemic due to a lack of vaccines and little financial leeway to support the economy.
60
percent of low-income countries are threatened or affected by debt problems, according to the IMF.
According to the IMF, over 60 percent of low-income countries were already threatened or affected by debt problems by 2022. That is twice as many as in 2015. “In terms of financial policy, numerous countries have their backs to the wall,” according to sources in the Federal Ministry of Finance.
The tightening of monetary policy by the central banks in the USA and the euro zone is further tightening the conditions under which states can refinance themselves. After the recent banking crisis in the USA, there is also a risk that capital will be withdrawn from riskier developing and emerging countries.
The IMF has more than quadrupled its interest-free lending to support the lowest-income countries. With the so-called Common Framework, the G20 countries also created an international framework for relieving the burden on developing countries in 2020. This is to prevent highly indebted countries from falling into further distress in times of financial instability.
To date, however, few countries have used this mechanism to write off or restructure sovereign debt. Critics complain, for example, that not all creditors, especially private financiers, are included in the restructuring processes. According to experts, among other things, an internationally oriented system for dealing with state bankruptcies is needed. According to the Federal Ministry of Finance, the federal government also wants to push ahead with the reform of the Common Framework at the spring conference.
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