Spring Meetings Readout: Outcomes and Next Steps
The spring meetings of the International Monetary Fund (IMF) and World Bank Group concluded on April 16, wrapping up a week of public and private convenings. The meetings struck a mostly cautious tone, highlighting the slowdown in global growth amid still-high inflation, and urging vigilance in the wake of high-profile bank failures and financial instability earlier in the year. Progress to “evolve” the World Bank’s mission and expand its lending capacity, plus a new initiative to help restore debt sustainability in debt-distressed countries, were net positives, but the meetings also highlighted rising “fragmentation risks.” As a case in point, and in contrast to the norm prior to Russia’s invasion of Ukraine, neither institution’s governing body—the Development Committee for the WBG, and the International Monetary and Financial Committee for the IMF—issued a consensus-based “Communiqué,” a small but illustrative example of the current challenge facing multilateral institutions.
The IMF’s latest World Economic Outlook forecasts a slowdown in global growth, from 3.4 percent in 2022 to 2.8 percent in 2023, with a medium-term growth forecast of around 3 percent per year—well below the historical average. The IMF’s economic counselor and director of research, Pierre-Olivier Gourinchas, attributed a portion of the slowdown to “the rising threat of geoeconomic fragmentation leading to more trade tensions; less direct investment; and a slower pace of innovation and technology adoption across fragmented ‘blocs.’” He warned that such fragmentation would impair our ability to “tackle global challenges such as climate change or pandemic preparedness,” effectively linking the risk of fragmentation to a key aspect of reform at the multilateral development banks (MDBs).
World Bank “Evolution”
The push to evolve development finance and equip the MDBs to better address global challenges such as climate change, pandemic preparedness, and fragility and conflict, started with the IMF and WBG annual meetings last October. Since then, key voices, such as the United States (the institution’s largest shareholder) and India (as chair of the G20), have made advancing MDB evolution a top priority. Priorities for the spring meetings included alignment on the bank’s overall mission—a necessary step for operationalizing evolution reforms—and initial identification of sources of finance to meet an expanded WBG mandate.
Shareholder alignment on the bank’s mission is not straightforward. Many borrowing countries fear that a stronger focus on “sustainability, resilience, and inclusiveness” will come at the expense of other development priorities. Their concern is reflected in the G24 Communiqué, which cautions that “a new vision and mission could create potential for tradeoffs in investments and policies . . . (which) should not come at the cost of development finance.” Incoming president Ajay Banga insists that no trade-off exists, rather that sustainability and resilience are intertwined and foundational to poverty reduction and shared prosperity. Ultimately, the bank advanced a nuanced approach to updating its mission statement, calling for greater focus on sustainability, resilience, and inclusiveness in support of the existing core goals of ending extreme poverty and promoting shared prosperity. The majority of Development Committee members “welcomed discussions on the provisional updated WBG mission statement and look forward to its finalization.”
Beyond an updated mission statement, which provides the foundation for operational priorities (and financing), the spring meetings also highlighted a series of measures that, taken together, would boost the WBG’s lending capacity by up to $5 billion per year over 10 years, for up to $50 billion in additional lending capacity. These measures include a 1 percentage point reduction in the bank’s minimum equity-to-loan ratio to 19 percent, a hybrid capital pilot for capital market investors, and a scaled-up bilateral guarantee program. They are consistent with recommendations from the independent review of MDBs’ Capital Adequacy Frameworks (CAF), commissioned during Italy’s G20 presidency, to advance the bank’s mission while maintaining its triple A ratings and preferred creditor status. A senior U.S. Treasury official called the steps an “initial down payment” on reforms at the World Bank and other MDBs.
New official financing sources, including for the poorest countries, will likely be needed to galvanize support for further evolution reforms across the membership, including agreement on the definition of global challenges and the criteria for selecting operations that qualify for various incentives. And even then, official finance will not be sufficient given the trillions of dollars in investment needed over the coming decades. As Banga indicated, a major component of the evolution going forward will call on the WBG to do much more to mobilize private capital at scale.
Global Sovereign Debt Roundtable
With roughly 60 percent of the world’s poorest countries at high risk of debt distress or already in distress and a growing number of middle-income countries at risk, debt issues were once again front and center. The meetings launched the Global Sovereign Debt Roundtable (GSDR), cochaired by the IMF, World Bank, and India as G20 president, to foster “greater common understanding among key stakeholders on concepts and principles, including on comparable treatment of private sector claims.” The GSDR is the latest innovation intended to accelerate debt restructuring processes and assist countries in debt distress, including both low- and middle-income countries, but it remains to be seen if it can accelerate negotiations with the largest creditors, among them China and a diverse set of private investors.
While not elaborated in any official statement, the press reported that China dropped its claim for the MDBs to participate in debt restructuring, a positive development consistent with the MDBs’ “preferred creditor status,” which is especially important if MDB evolution contemplates additional resources from donors. At the same time, the GSDR statement referenced the MDBs’ “provision of net positive flows of concessional finance” and the International Development Association’s “provision of positive net flows and the ex ante implicit debt relief through increased concessionality and grants to countries facing higher risks of debt distress.” Critically, if MDBs increase their financing to a country, financing assurances provided in the context of an IMF program would need to include China’s commitment to roll over its exposure to avoid the possibility that MDB disbursements would go to repay Chinese claims.
The spring meetings were held against a backdrop of recent extreme weather events, including flooding that displaced over 30 million people in Pakistan; a cyclone in Africa that set the record for the highest “accumulated cyclone energy” of any Southern Hemisphere storm in history; and a once-in-a-millennium rainfall, as 26 inches of rain fell in a single day in Fort Lauderdale, Florida. These events drove home the point that work on “climate”—a catch-all that covers mitigation, adaptation and resilience, and loss and damage—is foundational to development and sustained poverty reduction and shared prosperity.
Successive IMF managing directors have endorsed the view that climate change is “macro-critical” and therefore squarely within the fund’s remit, a view shared by the International Monetary and Financial Committee. Yet, while climate is increasingly recognized as central to MDB evolution, some U.S. lawmakers have questioned the IMF’s work on climate, and some former and current staff and officials have rightfully raised questions about the boundaries of IMF work on climate and the appropriate division of labor between the IMF and the MDBs on climate-related issues.
The IMF identifies climate change as salient to economic stability and sustainability and is therefore covered as a matter of practice in annual IMF surveillance reports. On the lending side, there are multiple examples of how climate change has impacted countries’ external financing needs, through costs associated with more frequent and extreme weather events, higher food imports (or lower food exports) and transport costs, and various aspects of the energy transition. The spring meetings provided an opportunity for the IMF to highlight its Resilience and Sustainability Trust (RST), created last year to provide long-term concessional financing for needs including climate adaptation and the energy transition. To date, Rwanda, Barbados, Costa Rica, Bangladesh, and Jamaica have reached agreements for pilot programs with the facility, and the IMF reports more than 40 members in the queue. However, financing for the RST is currently short of target, and donors will need to decide whether to allocate limited funding to the RST, the Poverty Reduction and Growth Trust, or other concessional financing pools.
All told, and notwithstanding the backdrop of fragmentation risks, the spring meetings managed to advance elements of MDB evolution and a possible improvement to the existing sovereign debt architecture that promises to accelerate debt relief for both low- and middle-income countries. But expectations for even more consequential reforms, including to address climate, are high. With a handful of ministerial meetings and leaders’ summits between now and yearend, there will be pressure to deliver, not least on financing.
Stephanie Segal is a senior fellow with the Economics Program at the Center for Strategic and International Studies in Washington, D.C.