The World Bank and IMF Spring Meetings take place this week, bringing together leaders from around the world. The meetings come as developing countries are juggling one crisis after another, from the still-ongoing pandemic to looming debt issues. All of these challenges and more will be on the agenda at the meetings, but it’s not clear which will see action. CGD’s experts take you through what they’re paying attention to.
It's time to move beyond piecemeal responses to global problems
As the Spring Meetings begin, the backdrop is one of multiple crises which interact in a vicious cycle: the war in Ukraine, the continuing COVID-19 pandemic, humanitarian crises in Afghanistan, Yemen, and elsewhere exacerbated by rising inflation and food and fuel price hikes. For many countries these crises come at a time of depreciating currencies, continuing fiscal pressures and increasingly unsustainable debt burdens. What I hope to see from world leaders this week is recognition that these multiple emergencies require a response commensurate in speed and scale. We need to address the crisis systemically, not piecemeal or by isolated initiatives. A legacy of the inequity in responding to COVID-19 globally has been an erosion of trust in the multilateral system. The Spring Meetings are the moment to show that the international community can act and respond in a manner that begins to repair and restore the sense of common purpose that we will need to overcome the challenges for the next generation.
We need action, not just agreement, on pandemic response
As COVID-19 spikes in China and even the highly vaccinated UK experiences hospital occupancy crunches yet again, the pandemic’s global disruption continues. A recent paper by Agarwal et al. estimates excess deaths close to levels experienced during the first World War and cumulative economic losses from COVID-19 at about $13.8 trillion through 2024. And yet, the Multilateral Leaders Task Force (MLTF) convened by the IMF, the World Bank Group, the WHO, and the WTO in June 2021 with great urgency has not yet realized its shared aim to deliver vaccines and other countermeasures at scale. Eighty low- and middle-income countries are off-track against their own vaccination goals and have not reached the target of 40 percent of the population covered with two doses, much less boosters, as of April 11.
While a scenario where COVID-19 evolves into a mild endemic disease is one possible outcome, experts underscore that the future may not be so benign—a new variant might be more transmissible or even more virulent than Omicron. In any scenario, less efficacious vaccines put more people at risk, and new birth cohorts and those who are immunosuppressed remain vulnerable to the worst outcomes without action. There are calls to pivot to long-term management and preparedness but where is the needed financing and action? How will COVID-19 response fare given other crises underway, from war to food price increases to debt distress? Can the MLTF get back on track? How will the G20 and the G7 processes intersect? We’ll start to see the answers to these questions emerge this week.
The future of global economic policy coordination: Is the G20 defunct, or can it trudge along?
Sometimes for better and sometimes for worse, the G20 has been the central artery of global economic cooperation for the past decade and a half. The body gained much legitimacy during the global financial crisis, where it was uniquely effective in driving a forceful and coordinated global economic response.
But the G20’s ability to provide direction—and drive concrete action—has waned over time as divisions and geopolitical rivalries emerged. This became starkly evident during the COVID-19 pandemic, when G20 communiques highlighted the need for collective action but failed to deliver an effective global vaccination effort. Now, the Russian invasion of Ukraine threatens to render the body entirely defunct. President Biden has called for Russia’s eviction from the group and the White House has confirmed that Treasury Secretary Yellen would boycott some meetings if Russian officials are present, but not all members agree with that stance. It is hard to see a path forward.
The bitter pill is that the world’s premier cooperation body is crumbling at a time when the planet so badly needs nations to work together on crises from famine to climate change. If the G20 can no longer exist in its current form, it urgently needs to be reinvented. Much of the action has moved to the G7, but how can a group representing less than a third of the global economy, as opposed to the G20’s 70 percent, drive progress on the global existential issues of our time? What can we reinvent in the G20’s wake? And can a global governance body be effective it if doesn’t include both the US and China, or if it includes just the most advanced economies and not major emerging nations? None of these questions will be resolved at next week’s spring meetings. But all eyes are on the G20 finance ministers meetings on April 20 for some early indications.
It’s time for fundamental fixes on debt
As the sovereign debt tsunami engulfs a growing number of poor and not-so-poor countries, we hear urgent calls for “more efficient coordination.” But failure to coordinate or even to agree on comparable treatment of public and private creditors has been the central problem undermining G20 efforts. In the short-term, the G20 Debt Service Suspension Initiative (DSSI) should be extended and expanded to middle-income countries in debt distress. But that is no substitute for more fundamental fixes. Almost 20 years ago, the international community chose a contract-based approach over an international sovereign bankruptcy court (the Sovereign Debt Restructuring Mechanism) to make sovereign debt restructuring work better. Two contract reforms would make a major difference. Public and private creditors, as well as countries issuing the debt, should move forward on transparency standards for sovereign debt contracts and a central registry. Non-transparent debt contracts should be unenforceable, and bond and loan contracts should include provisions to permit temporary debt service suspension without triggering a default in clearly defined crises such as a pandemic or war.
The current impasse on debt issues exacerbates the plight of the growing number of countries with unstainable debt levels, making restructuring protracted and costly.This would be a good time for a breakthrough, but the odds of success are getting longer by the day.
The threat of stagflation in emerging markets and developing economies
As ministers of finance and central governors from emerging markets and developing economies (EMDEs) gather at the Spring Meetings, I expect that a central part of their discussions will focus on how to avoid stagflation, namely a period of sustained high inflation and low growth. EMDEs are far from done recovering from the COVID-19 shock and are now being hit by two new shocks: the global effects of the Ukrainian war and the expected tightening of financial conditions associated with the Fed’s interest rates hikes. While the sharp increase in the prices of oil and food is fueling inflation, the projected decline in global growth resulting from the war reduces the global demand for goods and services produced by EMDEs. Add to this the expected higher international financing costs from the rise in Fed’s rates, and the combined adverse shock on EMDEs is huge.
Facing large external headwinds, policymakers from EMDEs find themselves without sufficient tools: they can increase interest rates to control inflationary expectations, but this policy of monetary tightening disincentivizes credit, investment, and growth. And they don’t have any more fiscal space to undertake countercyclical fiscal policies to support economic activity: where this space was available before, it was used in the past two years to deal with the economic impacts of COVID-19. Expansionary fiscal policies and very low international interest rates led to large external indebtedness, leaving many countries quite vulnerable to increases in international refinancing costs, which are now expected. To contain this fragility, countries are trying to reduce their fiscal deficits. So, to fight inflation and maintain financial stability, authorities need to tighten both monetary and fiscal policies which exacerbate the contractionary impact of the external shocks.
Is there a solution to this conundrum? I don’t think so, at least not in the foreseeable future, but I expect the reemergence of some of the discussions that were very popular in the post-global financial crisis period. A prominent one was on how to minimize the spillover effects of monetary policy in advanced economies on EMDEs, including through capital flow management policies. Not much was done then. Unfortunately, I don’t expect that much will be done now.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.