The world’s finance ministers and central bank governors are gathering in Bangkok, Thailand this week for the Annual Meetings of the International Monetary Fund (IMF) and World Bank. Our experts are on the ground talking to leaders and getting the behind-the-scenes scoop on how the Bretton Woods institutions are taking on the most urgent challenges in the global economy, including conflicts in the Middle East and Ukraine, soaring public debt, and the impact of artificial intelligence (AI).
Check back for expert reactions to breaking news, updates from our events with high-level policymakers, and more.
day five
“They finally get it.” Closing thoughts on Bangkok.
A sharper fiscal message but little policy momentum
How AI can take central banks from forecasting to “nowcasting”
The Global South confronts a new dilemma
French Finance Minister Roland Lescure on bond market pressure and upcoming elections
Bangkok has been relatively quiet on this far-reaching reform
Finance Minister Nirmala Sitharaman on India’s approach to trade
OCTOBER 16 | 6:30 AM ET
“They finally get it.” Closing thoughts on Bangkok.
We’ve come to the end of another IMF-World Bank Week, but it’s an IMF-World Bank Week unlike any other in the history of these institutions. Now it’s easy to say, well, because we were in Thailand and Bangkok, things felt different. And there’s no doubt things certainly felt different in these meetings. But it wasn’t just the atmosphere, and it wasn’t just the location. Something has changed in the ministers and the central bank governors, in the meetings and the conversations. And all week I’ve been struggling to figure out what it is. And it’s only today when we hosted India’s finance minister and France’s finance minister that it finally clicked for me what’s going on.
For three years I’ve come at the end of these meetings and given these remarks and basically issued a call to action to the IMF and the World Bank membership to say: “Wake up to the era of geoeconomics we live in. Remember the founding of these institutions, that national security and finance are interconnected. You can’t operate your policy devoid of the realities of geopolitics.”
And for three years those ministers have come here and tried to avoid those tough questions, and I understand completely why. It is not their training, it is not their experience, it is not what they signed up to do. They are trying to foster growth for their economies. But they have realized through hard experience of the shocks we have all experienced over the past several years that they do not live in that world anymore. And what’s different about these meetings is they finally get it. Minister after minister came to this desk and right before we went on camera, they would turn to me and turn to my colleagues and say: “Ask me the tough question. Ask me about what happened in Saudi Arabia. Ask me about Iran and the war.”
It was the opposite of what had happened before, something completely different. They had finally absorbed the reality of what we are living in—this tectonic shift in how geopolitics and finance works. And I think it’s for the better. I think it will lead to better policy. I think it will make everything we do here more relevant and, most importantly, it will deliver better growth for the people around the world, because the policies that are implemented will reflect the realities in which they have to be delivered. That is what this is all about: the simple and fundamental realization that peace and prosperity have always been and will always be interconnected. It is not a new idea. It is an old idea. And these leaders forgot it. But I am so grateful to be here because they have rediscovered it. And if the Atlantic Council in any small shape or form through our work have helped them rediscover it, then I’m incredibly proud of that.
We will continue that mission in the days, weeks, and months ahead. That will be our commitment. We believe that these institutions are vital for economic prosperity, but equally important, they are vital for global peace. We will continue that work. And I want to thank the incredible team, my colleagues at the GeoEconomics Center, the Engagement Team at the Atlantic Council, our team working around the clock back in DC, our AV squad right behind me who have put on these fifty events over the last five days. It has been a nonstop effort to bring the meetings around the world. We hope you have enjoyed the programming. We won’t stop here at the Atlantic Council. You can bet we’ll see you back in Washington, DC.
OCTOBER 16 | 5:00 AM ET
A sharper fiscal message but little policy momentum
The frenetic energy of the city of Bangkok stood in sharp contrast to the subdued mood of financial policymakers gathered here this week. The ongoing conflicts in Ukraine and the Gulf continued to weigh on delegates, and US Treasury Secretary Scott Bessent’s absence diminished the gathering’s political weight. While the IMF delivered a stark warning about government finances in the World Economic Outlook, the meetings produced little in the way of policy agreements to take on hot topics like AI risks or regional integration.
Still, there were positive developments to be found as I walked the hallways of the convention center this week.
For instance, the Sovereign Debt Roundtable noted that all past debt restructuring cases were close to being completed. As for ongoing program cases, Senegal could become a test case for faster implementation of the Common Framework, while Argentina probably received the least amount of public attention since it returned to the multilateral fold in 2016.
The Bangkok Blueprint for Fraud-Resilient Financial Services, developed by the IMF, World Bank, and Bank of Thailand, was a win for the Thai hosts. The playbook for national policymakers addresses the risks that financial fraud poses to households, businesses, and confidence in digital financial services.
Thailand was a worthy setting to illustrate the current dynamics of the global economy. Southeast Asian economies have benefited from the diversion of US-China trade and strong demand for AI-related inputs. The rise of digital payments was evident on every street corner.
And inside the hall, the promises and challenges of AI, crypto assets, and blockchain-based payment mechanisms were a constant topic. Central bank digital currencies also remained a subject of debate. The European Central Bank continues to advance preparations for a digital euro, as ECB President Christine Lagarde shared from our studio, but views still differ on the benefits of particular models and on how best to improve cross-border payments.
The rhetoric from policymakers on the main stage or passing through our studio suggests they understand the urgency of the world’s growing economic vulnerabilities. But they will return to their respective capitals without much to show for it this time.
OCTOBER 16 | 4:10 AM ET
How AI can take central banks from forecasting to “nowcasting”
During a fireside conversation in Bangkok today with IMF Managing Director Kristalina Georgieva, Federal Reserve Chair Kevin Warsh said: “[AI] is going to fundamentally change the conduct of monetary policy.” One way this will play out is the development of “nowcasting” tools.
Central bankers have traditionally guided economies through the rearview mirror using monthly, quarterly, or annually collected data from the past. AI-centered models based on massive amounts of current economic data could fundamentally change that. By using very large high frequency datasets collected from online prices, consumer transactions, and job advertisements, central bank-designed AI models can “nowcast” and help provide an almost real-time picture of the economy. This is exactly what the Bank for International Settlements’ 2026 Project Spectrum is trying to accomplish using the European Central Bank’s Daily Price Dataset, which has billions of data points of daily prices for tens of millions of products. Hence, these models can detect shifts (minor and major) in the economy in real time, more effectively identify inflationary pressures sooner, and better distinguish data from noise.
Nowcasting becomes especially important in an increasingly geoeconomically charged global economic landscape, where tariffs and non-tariff trade barriers, geopolitical tensions, and disruptions in supply chains are rampant and more frequent and, hence, can lead to more volatility and unpredictability in economic outcomes.
And yet, forecasting is still an essential part of a central bank’s effective operations. This is because monetary policy impacts economic variables with lags, making it necessary for central bankers to forecast the direction of the economy in the future, not just understand where it is now.
Therefore, AI-heavy nowcasting should not replace forecasting. Both are needed, so central banks should try to come up with a new framework where both are used. After all, better understanding of how the economy is doing in real time can substantially help central bankers to make better forecasts of the economy’s direction in the future (“looking out the window,” to quote Warsh) and hence make their monetary policy more effective and accurate.
OCTOBER 16 | 3:33 AM ET
The Global South confronts a new dilemma
On Friday morning, Federal Reserve Chair Kevin Warsh’s acknowledged that US monetary policy creates spillovers for the rest of the world, during his fireside chat with IMF Managing Director Kristalina Georgieva. Two floors above them, shortly after the conversation wrapped, civil society leaders gathered to show what that spillover looks like in practice for the Global South.
The textbook “impossible trilemma” holds that an economic policymaker can choose only two of three policy goals: a fixed exchange rate, the free flow of capital, and independent monetary policy. The consensus among civil society leaders gathered for Friday’s panel on “Managing Financial Openness in the Global South” settled on a crucial argument: for many economies, the impossible trilemma has become a simple dilemma. An independent monetary policy is only possible if a country’s capital account is adaptively managed to mitigate domestic financial market frictions. The panelists discussed research covering more than fifty countries over twenty years, showing that capital controls are necessary to preserve monetary autonomy and ensure macro-financial stability.
Research by the economist Helene Rey showed that these countries have less autonomy than previously assumed. Domestic financial conditions—the exchange rate, inflation, interest rates—move closely with the global financial cycles. Those cycles are driven by global interest rates, which are primarily driven by the US Federal Reserve rate.
Warsh gave no hints in his conversation with Georgieva about what the Fed will do next on interest rates, while assuring the audience that domestic “price stability” was his number one goal. But what the Fed decides will have ramifications far outside the United States.
OCTOBER 16 | 1:29 AM ET
French Finance Minister Roland Lescure on bond market pressure and upcoming elections
OCTOBER 16 | 1:13 AM ET
Bangkok has been relatively quiet on this far-reaching reform
Ahead of the meetings, the IMF and World Bank released their Debt Sustainability Framework for Low-Income Countries, the first overhaul since 2017. This tool for assessing debt risk is important because it shapes which countries are eligible for International Development Association grants and debt restructuring via the Common Framework. The problem is, it’s barely being talked about in Bangkok.
From a development perspective, the biggest change in the new reform is a new long-term module that extends projections and accounts for the impact on debt of spending on education, health, climate adaptation, and infrastructure necessary for growth.
The review’s simulations make the case. An increase in public spending of 1 percent of gross domestic product lifts long-run output by roughly 1.9 percent for health and education and about 3 percent for infrastructure.
IMF Managing Director Kristalina Georgieva noted this week that low-income countries’ debt service costs surged from 6 percent to 14 percent of revenue in a decade, even as their overall debt has decreased.
Despite the fact that the framework influences restructurings and credit ratings (and ultimately the cost of capital), the creditors haven’t really talked about this new long-term module. The Global Sovereign Debt Roundtable’s progress report on Wednesday gave the new framework a single procedural bullet and said nothing of its long-term module.
At the same time, the debtors’ side hasn’t necessarily given it much attention either. The new UN-backed Borrowers’ Platform, which held its first Governing Council meeting here on Monday, warned that interest costs are crowding out health, education, and climate spending. But it made no mention of the framework that judges how much of that debt is sustainable.
The framework will start in late 2027. But the bigger question is whether the IMF will apply this framework when it designs its lending programs in response to Article IV country health checks.
The framework can now show that investing in people pays for itself on the right terms, but it cannot set those terms. And in a statement to ministers yesterday, the US Treasury warned the IMF away from lending that “veers into development-policy lending,” suggesting the politics may not match the model.
OCTOBER 16 | 12:13 AM ET
Finance Minister Nirmala Sitharaman on India’s approach to trade
day four
Who will win the battle of the bonds?
Can Asian economies make the good times last?
Eurogroup President Kyriakos Pierrakakis on European resilience and reform
The new geoeconomics of inflation
To make the leap, Thailand needs to convert foreign investment into local capabilities
The global economic safety cushions are wearing thin
At a high-stakes meeting today, the G20 is searching for balance
OCTOBER 15 | 11:29 AM ET
Who will win the battle of the bonds?
Step into the ring with the Atlantic Council’s Josh Lipsky as he breaks down perhaps the biggest topic at the annual meetings—the pugnacious bond market—with the help of Thai fighters.
OCTOBER 15 | 10:22 AM ET
Can Asian economies make the good times last?
Almost thirty years after the Asian financial crisis engulfed the region in economic turmoil, South Korea and the Association of Southeast Asian Nations (ASEAN) economies have again become an important motor for the global economy. They are benefiting from a global super-cycle in AI investment, while a declining bilateral flow of goods between the US and China has increased trade flows through Asian economies more generally.
At the same time, the region is becoming more exposed to geopolitical developments. China is its largest production partner, a major source of capital and intermediate goods, and an important consumer market. On the other hand, the United States remains a critical export destination, technology provider, investor, and security partner. Neither relationship can substitute for the other, but deteriorating relations between the two superpowers could make it more difficult for the region to keep its current dynamic.
For South Korea, the AI boom has produced exceptional demand for semiconductors and helped offset the effects of higher energy prices. But as former Bank of Korea Governor Changyong Rhee noted during an Atlantic Council discussion this week in Bangkok, the gains are concentrated in a few companies and partly reflect US restrictions on China’s access to advanced semiconductor equipment. China’s eventual technological progress—or a relaxation of these restrictions—could weaken South Korea’s current advantage.
China’s economic role is also changing. South Korean companies have benefited for many years from supplying and investing in the “factory of Asia.” However, Beijing’s export-oriented economic model means that South Korean companies are now confronting Chinese companies at home and abroad.
ASEAN economies face a related dilemma. Owing mainly to Chinese investment and inexpensive inputs, they have become tightly integrated into global supply chains. Yet new investment does not automatically create domestic capabilities: Much of the underlying research and technology is still under foreign control.
Volatility
The region may also face increased financial volatility. Rhee described how rapid gains in semiconductor shares increased foreign investors’ exposure to the South Korean market. Their subsequent portfolio rebalancing generated equity sales and purchases of dollars, putting downward pressure on the won even as South Korea’s current-account surplus expanded.
This complicates the distinction between strong and weak external positions, and memories of the 1997 crisis can make them difficult to accept. Countries therefore may face a choice between allowing the exchange rate to absorb external shocks and limiting its volatility, which could put unwanted constraints on monetary policy.
The region’s dependency on oil imports also means that higher prices could weaken trade balances and raise inflation, while shifts in the global risk appetite could generate capital outflows and exchange-rate pressures. Currency depreciation could complicate trade relations with the United States, and central banks would have a harder job weighing their price stability objective against the impact of policy decisions on the domestic economy.
Opportunity
To improve the foundations for stable economic growth, former Indonesian Finance Minister Chatib Basri at an Atlantic Council event this week called for domestic industry to collaborate with external partners across geopolitical camps. He pointed to a recent partnership between the Ford Motor Company, China’s Huayou Cobalt, and Vale Indonesia that could help Indonesia upgrade its nickel processing capabilities.
Sutapa Amornvivat, a Thai leader in digital integration, suggested that the digital economy offered another route to stronger economic growth. ASEAN’s Digital Economy Framework Agreement, due to be signed in November, could have a catalytic impact as it promotes digital payments and e-commerce more broadly.
First, however, ASEAN countries must decide how to combine competing technologies, data rules, security standards, and AI systems without dividing the regional market. They also would have to manage wide differences in digital infrastructure, energy availability, and skills across member states. Growing integration would indeed help the region to prepare for a turn in the economic cycle. Deepening trade under the Regional Comprehensive Economic Partnership, moving toward interoperable payment systems, and improving energy networks could give East and Southeast Asian firms access to a market large enough to support innovation and real economies of scale, helping them to consolidate their gains if and when the economic cycle turns again.
OCTOBER 15 | 7:13 AM ET
Eurogroup President Kyriakos Pierrakakis on European resilience and reform
OCTOBER 15 | 6:10 AM ET
The new geoeconomics of inflation
These days, central banks are asked to solve an inflation problem they did not create and cannot solve alone. From my observations here at the annual meetings, central bankers are not particularly happy about this. In any conversation in hallways and meeting rooms about inflation’s resurgence, supply-side factors are immediately mentioned—particularly by the monetary policy crowd.
The numbers tell the story. The IMF projects global headline inflation to rise from 4.1 percent in 2025 to 4.7 percent in 2026, with euro area inflation increasing from 2.1 to 3.1 percent and the US increasing from 2.7 to 3.6 percent.
This is partly driven by four factors that have nothing to do with monetary policy:
- Persistent fiscal deficits increase aggregate demand.
- Tariffs raise import costs, disrupt supply chains, and weaken competition, while industrial subsidies and efforts to reshore strategic production can further increase fiscal deficits and create supply bottlenecks.
- Conflicts and energy disruptions push up commodity prices, production costs, and defense spending (fueling those fiscal deficits).
- Though largely forgotten in this year’s annual meetings, the increasing frequency and severity of climate-related extreme events cause spikes in government spending in response to crises, food prices (because of more floods and droughts), energy demand (for more cooling and heating), and insurance and risk premiums.
To fight back, central banks have essentially one weapon in their arsenal: interest rates. So they can only confront inflationary pressures by suppressing aggregate demand through higher interest rates. They cannot reduce tariffs, resolve conflicts, expand energy supplies, reverse subsidies, or reduce defense expenditures.
In today’s geoeconomically charged landscape, price stability can no longer be treated as the exclusive responsibility of central banks. While central banks’ independence and their leadership in the fight against inflation are essential, confronting inflation requires greater coordination across monetary, fiscal, trade, industrial, and foreign policies. Otherwise, governments risk fueling inflation with one set of policies while forcing central banks to fight it at the expense of investment, employment, and growth.
OCTOBER 15 | 2:13 AM ET
Pakistani Finance Minister Muhammad Aurangzeb on the state of fiscal reform and moving “from aid to trade”
OCTOBER 15 | 1:14 AM ET
Polish Finance Minister Andrzej Domański on security spending, crypto, and Europe’s “naivety” on industry
OCTOBER 14 | 11:55 PM ET
To make the leap, Thailand needs to convert foreign investment into local capabilities
It is rare to have four economists agree on one policy priority for a country’s growth prospects. My conversation yesterday with Santitarn Sathirathai (vice minister of finance for Thailand), Stephen Ndegwa (World Bank division director for Thailand and Myanmar), and Arnaud Dupoizat (the International Finance Corporation’s regional director for East Asia) was one of those rare occasions. When asked about one policy that tops their list of priorities in the next three to five years to help Thailand’s ambition in achieving high-income status by 2037, all three mentioned increasing productivity and domestic value added in the Thai economy—exactly my main finding a few weeks ago when I wrote “the measure of success should not be the amount of investment Thailand attracts, but the value it creates at home.”
This is true, not only for Thailand but also for all ASEAN economies. The amounts of foreign trade relative to the size of these economies are some of the highest in the world. Foreign direct investment (FDI) has been fueling their industrial base, especially in the past decade because of “China + One” policies pursued by multinational companies. However, the share of domestic value added in ASEAN economies (especially the bigger economies known as the ASEAN-5: Indonesia, Malaysia, the Philippines, Thailand, and Singapore) has been shrinking, productivity has more or less stalled, and high-paying jobs have been scarce.
So, while more FDI is always welcomed, turning “that FDI into local capabilities, better [small and medium-sized enterprises], better skills, and better jobs,” as Santitarn put it, is what is most needed for Thailand and other ASEAN-5 economies, for them to continue growing and avoid the middle-income trap.
OCTOBER 14 | 11:33 PM ET
The global economic safety cushions are wearing thin
While the IMF’s World Economic Outlook lays out resilient growth and inflation forecasts, the Global Financial Stability Report makes the detailed case around the risks and vulnerabilities in the outlook. Three themes are worth mentioning, and the key vulnerability is that all three have meaningful interaction with the bond market.
First, the technology sector’s AI investments take up a huge part of the debt market, with a 10 percent share of global investment-grade corporate bonds (vs. 1 percent in 2024). Second, hedge funds held about 9 percent of US government bonds in 2025, more than double their 2022 share. Third, the energy shock beginning in late February shook global markets.
It means governments are paying more to borrow. The interest rate on ten-year government bonds has increased about 1.5 percentage points in France, 1.25 points in the United States, and emerging economies outside China pay about 0.65 more (see chart below). While higher bond yields increase debt interest payments for governments, they also reduce the regulatory required capital value of bonds held by banks and hedge funds.
IMF reports make an important point that none of these risks in isolation is a crisis. However, the combination of risks shows a far more elevated chance of a crisis, with thinning safety cushions. Instead of governments taking steps to lower debt, they are spending to shield consumers and businesses from the energy shock.
To understand this complex scenario, the Global Financial Stability Report developed a stress test for banks against an AI crash, an energy shock, and higher interest rates. The test found that 22 percent of global banking assets fell below its 7 percent capital safety line. Last year’s test found 18 percent of banking assets falling below the safety line, implying that the interaction of risks is eroding resilience.
The weakness, the IMF found, lies with banks that lend heavily to non-banks, such as private credit and private equity funds. Policymakers should act while they still have time to curb risky borrowing. One way the IMF advises is to stretch out government debt maturity so less comes due at once. The IMF adds that governments should rebuild fiscal space “in a way not to complicate the task of monetary policy,” and in a way that strengthens institutions.
OCTOBER 14 | 10:35 PM ET
UN under-secretary-general: Nepal is feeling”compounding effects” of the climate and supply-chain crises
Jorge Moreira da Silva, United Nations under-secretary-general and executive director of the United Nations Office for Project Services, joins the Atlantic Council’s Michael Kugelman ahead of a trip to Nepal to discuss how the country is dealing with devastating floods and the fallout from the Strait of Hormuz crisis.
OCTOBER 14 | 9:18 PM ET
At a high-stakes meeting today, the G20 is searching for balance
The Group of Twenty (G20) finance ministers and central bank governors meet Thursday in Bangkok, their last chance to all sit down together before the end of the US G20 presidency and the leaders’ summit in December in Miami. Their to-do list is not short. When they met in Asheville, North Carolina, over the summer, they agreed to focus on tackling macroeconomic imbalances (by which the US means China’s dangerous trillion-dollar trade surplus), bringing down energy prices by restoring transit in the Strait of Hormuz, dealing with sovereign debt, and coordinating across borders on regulation of digital assets.
So they could be forgiven for not having made too much progress on some of the world’s thorniest economic challenges in the past six weeks. Like any group project nearing a deadline, this meeting becomes about what they actually want to prioritize with the little time left in the US presidency of the G20. The problem is that the person who would chair the meeting, US Treasury Secretary Scott Bessent, has decided to skip the trip to Bangkok. That means leadership will fall to his colleagues, Federal Reserve Chair Kevin Warsh (who is attending his first IMF-World Bank meetings as Fed chair) and Bessent’s deputy, Francis Brooke. The rest of the G20 countries have, despite major differences with the US, largely supported a wide swath of the agenda—perhaps most importantly on imbalances. Notable exceptions include, unsurprisingly, China and Russia.
All eyes will soon turn toward the UK as the next host, and already I’ve heard conversations this week about what the UK will and won’t take forward from this year.
The G20 has shown its worth time and again when crisis strikes and you need the world’s financial leaders to all coordinate quickly. Given some of the stark warnings about AI, debt, and energy risks this week in Bangkok, it would be good if the group finishes this year strong and heads into 2027 with momentum. That makes today’s meeting one of its more important in recent memory.
day three
Lebanese Finance Minister Yassine Jaber on IMF program progress, reforms, and Hezbollah
The jobs are coming. Will the money follow?
ECB President Christine Lagarde on European payment sovereignty, AI, and inflation
The sun is no longer shining, and urgency is rising to tackle soaring debt at last
The case for taxing better, not taxing more
The IMF hands developing economies a tough task
Climate change is missing in action from the IMF’s outlook
OCTOBER 14 | 8:48 AM ET
Lebanese Finance Minister Yassine Jaber on IMF program progress, reforms, and Hezbollah
OCTOBER 14 | 7:30 AM ET
The jobs are coming. Will the money follow?
Last month, the World Bank announced with much fanfare that it had attracted $112 billion in private capital to augment its own spending to create jobs and drive development in emerging economies, more than triple the level from four years ago.
Yet serious questions remain about allocation, absorption, and whether countries can receive financing at the scale required to generate enough jobs to fill the projected global job shortage of 800 million for new workforce entrants over the next decade. Today’s hot-ticket session discussing investment opportunities in emerging markets—the third leg of the World Bank’s “triple crown” of flagship events at these meetings—was encouraging, but it didn’t necessarily render answers.
At every turn at the mic so far this week, World Bank President Ajay Banga has leaned hard into the jobs agenda he oriented the Bank around, as seen this morning as well as in the other two legs of the triple crown: Monday’s session on “small AI” and Tuesday’s on finance for small businesses.
Announced Tuesday, the Bank’s new strategy for micro, small, and medium-sized enterprises—which employ some 90 percent of workers in developing economies—aims to deliver technological advancements such as digital payments, e‑invoicing, and cash‑flow data. These tools could transform how lenders assess risk and unlock finance (and thus growth) for millions of small firms that generate millions of jobs.
Similarly, task‑specific small‑AI tools that require less compute, energy, data, and infrastructure are creating opportunities in sectors such as health and agriculture. Yet risks persist: AI may exacerbate skills mismatches and create a K‑shaped labor market, where high‑skill workers capture gains while low‑skill workers fall further behind.
Across all these areas, trust, security, scale, and inequality threaten traction—alongside the broader geoeconomic headwinds of fragmentation, declining investment, and rising debt that also demand (and are seemingly gaining) attention and action this week.
There is emerging evidence and momentum around many of the ideas in the jobs agenda. Before we wrap up on Saturday, I’ll be watching to see whether the necessary political will, financing, and multilateral coordination will follow.
OCTOBER 14 | 6:48 AM ET
ECB President Christine Lagarde on European payment sovereignty, AI, and inflation
OCTOBER 14 | 4:09 AM ET
The sun is no longer shining, and urgency is rising to tackle soaring debt at last
The IMF has been warning policymakers about the growing need for fiscal adjustment for a while. In 2017, then IMF Managing Director Christine Lagarde famously spoke about “fixing the roof while the sun is shining.” Since then, the message of the IMF’s Fiscal Monitor has been consistent: Deficits are too high and can’t be supported by current levels of growth. Public spending should be more efficient and support measures better targeted. Revenue administrations need to be strengthened and tax collection broadened and streamlined. Yet countries around the world continued running large deficits.
They could afford to do so because of the favorable environment. Decades of low interest rates offset by relatively decent growth allowed governments to carry large deficits and manage rising debt fairly easily.
But that’s not the case anymore. Inflation has been running high in major economies such as the US and the eurozone for more than five years. And recent inflationary pressures stemming from the energy price shock are forcing monetary authorities to act. Interest rate hikes in major economies are pushing bond yields higher, further pushing borrowing costs up. Markets are signaling that this trajectory cannot continue, with bond yields rising to two-decade highs across the board.
With a debt pile as large as it was after World War II, sticky inflation, and high interest rates, there is a sense of urgency to get serious. That’s the message IMF Director of Fiscal Affairs Rodrigo Valdés was pushing when we spoke this morning in our studios in Bangkok, as Valdés presented the newest version of the Fiscal Monitor. The fiscal outlook is grim, but this is exactly the role of the IMF—to help policymakers here in Bangkok, but also at home, to design the policy mix that helps them navigate through this.
OCTOBER 14 | 3:22 AM ET
World Bank’s Lisandro Martín: “What we need to do is complement public financing with private financing”
Lisandro Martín, the director of the Outcomes Department in the Senior Managing Director’s Office at the World Bank Group, joined the GeoEconomic Center’s Juliet Lancey to discuss how the World Bank is responding to the decline in government investment in global development.
OCTOBER 14 | 1:28 AM ET
The case for taxing better, not taxing more
The IMF has just released its October 2026 Fiscal Monitor, with its clear and simple advice encapsulated in the title of the document: “Taxing better to boost growth.” Elevated levels of public debt and debt servicing due to high interest rates have put pressure on authorities to mobilize fiscal resources for development, social, and, increasingly, defense needs. However, public resistance to higher rates of taxation has strengthened, practically everywhere.
Against that backdrop, the Fiscal Monitor has sensibly focused on two pieces of practical advice: improving the design of taxation—in particular the value-added tax—to avoid distortions and disincentives to production; and improving tax collection procedures. These reforms can raise revenue while lowering production costs and easing compliance burdens, encouraging investment and business growth, and improving incentives to work and innovate—without worsening inequality.
The Fiscal Monitor highlights that the potential gains from efficient taxation are sizable. Specifically, reducing value-added tax–related production and consumption distortion could produce welfare gains of up to 0.8 percent of GDP in emerging market and developing countries. Reducing the tax-induced increase in the cost of capital could increase long-term growth by up to 2.7 percent. Reforms that improve work incentives could raise employment rates by 1.2 percent. Finally, stronger tax administration can generate higher revenue without changing tax rates.
The benefits of reforms are clear but diffuse and materializing gradually. As a result, these reforms have been difficult to implement in many countries as they have run into opposition from vested interests. Effective reform thus requires clear objectives and skillful implementation, including engagement with affected stakeholders.
In short, taxing better helps to ensure that necessary tax revenue is being raised at lower economic cost, to meet governments’ budgetary needs. This is practical and useful advice to many countries, both developed and developing.
OCTOBER 14 | 12:22 AM ET
The IMF hands developing economies a tough task
Across emerging markets and developing economies (EMDEs), the IMF’s World Economic Outlook sees a dip in growth this year and a projected rebound in 2027. But as we’ve seen in recent years, the aggregate masks a split. Globally, the countries ready to take advantage of AI and energy exporters are poised for growth, while it’s not as rosy a picture for energy importers and those further removed from the current AI boom. The pattern is described not necessarily as slowing or accelerating but as a reallocation of growth according to how much they are exposed to AI demand and war shock.
We see this starkly in the EMDEs. The Gulf and Middle East show sharp contractions due to persistent conflict. Meanwhile, many other oil-exporting or less war-affected and import-dependent countries are expecting growth over 7 percent (Rwanda, Ethiopia, India, Georgia, Tajikistan) and as high as 22 percent in Guyana. The low-income developing countries are projected to hold steady over two years at a 4.8 percent rate.
One striking point: Just thirty-two economies now produce 95 percent of global growth, down from fifty-four in April’s outlook. This is quite a fall in six months.
The World Economic Outlook does speak to some degree to inequality between countries, mostly in terms of the disproportionate vulnerability of lower-income households and countries to troubling inflation, debt, and the accompanying downside risks. But it does not really speak to inequality within countries. This is something I’ve called out repeatedly when we decode these documents, but it is worth mentioning because inequality matters for stability and for growth. We know inflation, for example, disproportionately impacts women and that debt service burdens crowd out governments’ ability to invest in health, education, and infrastructure necessary for growth.
The IMF prescribes both fiscal order and creating fiscal buffers, social protection with broadening the tax base to increase domestic revenues. This is a difficult mix for any government, but seemingly impossible for the cash-strapped governments of the EMDEs.
OCTOBER 14 | 12:01 AM ET
Climate change is missing in action from the IMF’s outlook
From 2017 to 2024, the World Economic Outlook (WEO) gave a major focus to the economic challenges posed by climate change. Over sixteen editions of the flagship publication, five chapters and twenty callout boxes were devoted to the issue. The latest WEO mentions climate only sparingly, at least until a list of past examinations of the issue on page 102 and the reprint of the IMF Executive Board assessment of the edition on page 106. To be fair, the authors do discuss the potential impact of “weather events” and “weather shocks” in outlining potential downside risks to the forecast. But overall, climate-related issues are no longer at the center of IMF analysis.
The reason for the change is obvious: Once Donald Trump returned to the White House in January 2025, climate change was sent into exile. Soon after the change of administrations, Treasury Secretary Scott Bessent gave a speech decrying the “disproportionate time and resources” that the IMF devoted to “climate change, gender, and social issues.” By September of last year, the institution had combined its units working on those headline issues into a division tasked with addressing “macro-financial and structural policies,” and most climate work was focused on individual countries’ needs. More importantly, the Trump administration no longer offers US support for IMF loans related to climate mitigation under the fund’s Resilience and Sustainability Trust mechanism, either voting no or abstaining in Executive Board decisions on such loans. The World Bank has come under similar pressure, forcing Bank President Ajay Banga to “retire” the institution’s goal of devoting 45 percent of its annual lending to climate change projects.
This week’s opening of the Bangkok meetings was greeted by flooding unusual for this time of year. So it’s clear that even if the IMF and World Bank are forced by political fortune to ignore climate change, climate change will not do them the same courtesy.
day two
Bangladesh’s finance minister on responding to development aid cuts
Optimistic growth projections send the wrong message
Consumers are reacting differently to sustained inflation, says Bank of England’s Megan Greene
Inflation is the biggest concern in the new IMF projections
Energy and AI are driving the winners and losers in global growth
AC on the Streets: Our experts answer questions about war and AI
Russia rides into Bangkok with a valuable US diesel deal in hand
OCTOBER 13 | 4:47 AM ET
Bangladesh’s finance minister on responding to development aid cuts
OCTOBER 13 | 3:53 AM ET
Optimistic growth projections send the wrong message
The IMF’s flagship products, following on the managing director’s curtain-raiser speech last week, have a complex story to tell. Despite a sequence of shocks in recent years, including tariffs and the recent spike in energy prices, global growth remains strong because supply has been rerouted through efficient transport and production networks.
Government spending and the AI boom have played a major role in upholding global demand, but both are competing for a limited pool of global savings, driving up long-term interest rates in the process.
Judging from its headline forecasts, the IMF is optimistic that this precarious balance will hold, allowing for global growth to increase from 3.1 percent in 2026 to 3.4 percent next year. At the same time, the number of countries holding up the world economy is shrinking (only thirty-two economies now account for 95 percent of global growth, compared to fifty-four in April), and the discussion of risks in the bowels of the IMF’s reports betrays major concerns about possible downsides.
For example, the IMF speaks of a “clear and present danger” in commodity and global bond markets, based on the plausible scenario where it takes until the end of 2027 to see the full recovery of oil shipments and long-term yields increase because central banks are slow to respond to inflationary pressures. Global growth would be half a percentage point lower next year as a result, and global inflation would be up by a full percentage point relative to the baseline.
But even this outcome would pale in comparison to a scenario that assumes that productivity gains from AI investments might have to be revised downward, resulting in a correction in asset prices and a tightening in global financial conditions. The combined effect would be a large drop of more than one percentage point in global activity relative to the baseline forecast, with the drop concentrated in the United States and Asia.
These calculations are not merely academic. They illustrate that the world economy is navigating around serious cliffs at a brisk pace. Seen from this perspective, the optimistic baseline provides the wrong signals for policymakers, especially in advanced economies with high debt and restive electorates. What could possibly go wrong by postponing fiscal belt-tightening for just another year?
Many emerging markets here in Asia know the answer. They have been successfully riding out several crises in recent years by pursuing sound fiscal and monetary policies and building strong institutions. The IMF therefore would have done well to paint a less rosy picture in its baseline. The lessons of the 1997 Asia crisis still ring deep in this part of the world.
OCTOBER 13 | 2:53 AM ET
Consumers are reacting differently to sustained inflation, says Bank of England’s Megan Greene
OCTOBER 13 | 12:51 AM ET
Inflation is the biggest concern in the new IMF projections
The fresh update of the IMF’s World Economic Outlook is out, and it looks like global growth is not the main story this time. The world economy seems to be stronger or more resilient than anyone could expect. The baseline scenario upgrades global growth—though not by much. The IMF projects 3.1 percent global growth (up by 0.1 percentage points from its last projection in July) in 2026 and keeps the same 3.4 percent in 2027. So, if the world is still growing, why are world economic leaders so worried? The answer is inflation. Inflation, like growth, also received a small upward revision. For 2026, the IMF projects inflation to reach 4.7 percent, and 4.1 percent for 2027 (up by 0.2 percentage points). This is not good news for the global economy.
Higher and more persistent inflation most likely will trigger monetary authorities to become more restrictive. That means higher borrowing costs, for you and me and also for governments around the world. And with debt levels reaching almost 100 percent of global GDP—a level similar to the post-World War II peak—governments will need to tighten their belts accordingly. With already limited fiscal space, we can expect less investment and social spending on areas such as healthcare and pensions. The WEO’s word count tells the story: 274 mentions of inflation, 145 for growth, and 115 for debt.
OCTOBER 12 | 11:55 PM ET
Energy and AI are driving the winners and losers in global growth
“Resilience Under Strain, Urgent Choices.” That’s the title of the World Economic Outlook (WEO), just released today by the IMF, and it captures well the potential and challenges facing its member states. The global economy is expected to grow by 3.1 percent in 2026, strengthening a bit to 3.4 percent in 2027. However, this stable outlook masks a bifurcation of growth prospects, with AI and energy the decisive factors. Those plugged into the high tech/AI investment ecosystems and energy exporters located outside the Middle East conflict zone have fared pretty well. Energy importers that are not part of the high-tech supply chains—especially low-income countries—have to cope with lackluster growth.
AI and other high-tech activities have become increasingly important in driving economic growth and equity market performance, to the point that it poses a concentration risk. Any correction in the highly valued tech stocks would have widely felt implications for the global economy.
Meanwhile, global conflicts are sending energy prices higher and forcing many countries to increase their defense spending. This is exacerbating their fiscal challenges in coping with record-high public debt (reaching 124 percent of GDP in Group of Seven countries) and the accompanying interest payments, as rates continue to rise.
Emerging market and developing countries have less debt (77 percent of GDP on the whole) but also less capacity to manage that debt, particularly when they need to borrow in dollars or euros. Indeed, a growing number of low-income countries are already in debt distress. The key policy recommendation offered by the WEO is for countries to rebuild their fiscal buffers. They can start by enhancing revenue and rationalizing spending, especially to make it more efficient. Monetary policymakers also need to be ready to act to keep inflation under control. Urgent choices, indeed.
OCTOBER 12 | 10:47 PM ET
AC on the Streets: Our experts answer questions about war and AI
In the latest episode of “AC on the Streets,” the Atlantic Council’s Ohimai Amaize hits the streets of Washington to find out what people want to know about the global economy, and Martin Mühleisen and Hung Tran provide the answers from Bangkok.
OCTOBER 12 | 9:13 PM ET
Russia rides into Bangkok with a valuable US diesel deal in hand
As Russian Finance Minister Anton Siluanov mingles with his counterparts in Thailand this week, he will be buoyed by some potential positive signs for the Kremlin’s finances thanks to the diesel deal announced by US President Donald Trump on Friday. Ukraine has had to downgrade its delegation as Finance Minister Serhiy Marchenko has decided to stay in Kyiv to convince the Rada to progress on thirteen benchmark reforms that unlock EU and IMF funding.
Trump’s latest move aims to provide relief to the global diesel market. Making it easier for third countries to buy diesel refined in Russia will, it is hoped, offset the diesel that used to come out of the Strait of Hormuz. As part of the deal, Russia promises to sell the United States 300,000 metric tons of diesel now, 500,000 in November, and a million in December, weakening its ban on diesel exports. This would presumably bolt onto what Russia was already selling, though that amount has been in decline. Russia managed to export just under 600,000 metric tons of diesel and gasoil in September, a ten-year low.
The plan raises several questions. One is whether it is legal in the US given the country’s ban on importing fuel from Russia. Another is who might now be emboldened to buy more. A third is whether the scheme will depress prices enough to justify another economic boon for Moscow, provided Russia actually has the capacity to export more.
First, the US Department of the Treasury temporarily lifted sanctions on imports of diesel fuel until April. But the 2022 Ending Importation of Russian Oil Act, which bans energy imports from Russia, can only be lifted by congressional approval (which is out of Trump’s reach even in this Congress) or by Russia meeting a series of requirements on Ukraine’s territorial integrity (which it won’t). The US produces enough diesel for its own needs, so firms are unlikely to expose themselves to legal uncertainty by importing Russian diesel to the US when they stand to gain little. On the other hand, the diesel deal will make third countries a little less fearful of the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026, which allows the US president to impose additional tariffs on goods from top buyers of Russian oil and gas. And for diesel prices to come down globally, Trump needs countries to increase their purchases from Russia.
Putin’s ramp-up of exports also seems a little fantastical, although not because of Russia’s existing diesel-export ban, which can be lifted by decree. Rather, it’s because out of Russia’s six main diesel-exporting refineries, several are operating below capacity. According to Maritime Executive, one refinery is out of service and two are operating at 25 percent of capacity following Ukrainian strikes. For the sake of argument, the Atlantic Council’s GeoEconomics Center has calculated that the proposed increase in diesel exports at current prices would generate an additional $4.7 billion by the end of the year in export income for Russia. This would boost Russia’s current account further than it already has been by the Hormuz crisis, but it would not do much to tackle the country’s fiscal deficit which, despite higher oil and gas income, has already reached $62 billion this year. Taxation is less onerous for refined products than for crude, but the Kremlin is quite skilled at coming after the “exceptional profits” made by firms whenever energy prices are high.
The main point is that the increased exports for Russia, even if they don’t meet the announced volumes, are helpful to Moscow but a drop in the ocean as far as the global diesel market is concerned. Washington’s signal hasn’t affected prices. But it adds to a context of sanctions permissiveness, which is worth far more to Moscow than a few million metric tons of fuel are worth to American consumers.
Meanwhile, Kyiv wasn’t told about the so-called energy truce before Trump announced it but has said it will stick to it and refrain from striking Russian refineries provided Russia stops targeting Ukrainian energy infrastructure. Several cities faced power cuts yesterday.
day one
Finance leaders are finally grasping their geopolitics problem
The Palestinian Monetary Authority’s Yahya Shunnar on the Israeli-Palestinian banking relationship
The Bank of England’s Sarah Breeden on policing AI and developing a digital pound
How advanced economies’ surging debt is impacting emerging markets
The IMF just reviewed some of its key policies. What will change?
Three shocks are pushing up long-term interest rates and threatening the stock market
The new geoeconomics of Bretton Woods
OCTOBER 12 | 7:42 AM ET
Finance leaders are finally grasping their geopolitics problem
Today the world’s financial leaders opened the annual meetings of the International Monetary Fund and World Bank facing a more daunting geopolitical landscape than at any time since perhaps the 1961 meetings in Vienna, which took place thirty-six days after construction of the Berlin Wall began.
Ministers from 191 countries are meeting to discuss and debate the need for cooperation on everything from AI guardrails to the risk of a sovereign debt crisis in France. Few expect any concrete breakthroughs. But as our team assembles in Thailand, I am more optimistic than I have been in a decade of taking part in these gatherings.
That’s because I am finally seeing signs that financial leaders understand that they cannot divorce their policymaking from geopolitics.
Three years ago, when the Hamas terrorist attack on Israel occurred on the eve of the annual meetings, the ministers and central bank governors didn’t want to deal with the potential financial fallout. Now, many of the governments actually want to start tackling the most complex international problems, from the impact of sanctions on the dollar to China’s economic imbalances. And all of these leaders now talk about how to adapt to a world that is being reshaped, instead of pretending as if we are going back to the old system of unfettered globalization.
The major news items heading into this week’s meetings included the US committing to buy Russian diesel and the Houthi attacks on the Riyadh airport. And country delegations are telling me they want to address these issues head on, not dodge the questions.
This is not to say that the delegates have all—or any—of the answers. But the first step in solving any problem is recognizing there is one. After years of ignoring the geopolitical realities staring them in the face, the world’s financial policymakers are finally showing they are ready to do what their predecessors who created these institutions did—link prosperity with security.
OCTOBER 12 | 7:30 AM ET
The Palestinian Monetary Authority’s Yahya Shunnar on the Israeli-Palestinian banking relationship
OCTOBER 12 | 5:30 AM ET
The Bank of England’s Sarah Breeden on policing AI and developing a digital pound
OCTOBER 12 | 4:32 AM ET
How advanced economies’ surging debt is impacting emerging markets
Combined sovereign debt in advanced economies has now reached nearly 110 percent of GDP, including 126 percent of GDP in the United States. These debt levels, coupled with persistently high interest rates, have knock-on effects for developing countries and emerging markets (EMDEs).
First, as advanced economies borrow more, they push up global borrowing costs. Higher US Treasury yields—a global benchmark—make it more expensive for EMDEs to access international capital markets, even when their economic fundamentals remain sound.
Second, higher returns on advanced economies’ assets (which are deemed safer) will induce a capital withdrawal from EMDEs into advanced economies. These outflows put downward pressure on local currencies of EMDEs, making imports more expensive and fueling inflation. These dynamics will force central banks to increase domestic interest rates to stabilize currencies and contain inflation, weakening private investment, domestic job creation, and economic growth.
Third, higher global interest rates intensify already heavy debt burdens in EMDEs. According to the World Bank, developing countries paid a record $415 billion in external debt interest in 2024. Moreover, between 2022 and 2024, they paid $741 billion more in external debt service than they received in new financing, the largest gap in the past fifty years. Rising debt-servicing costs leave EMDEs with fewer resources to invest in infrastructure, education, healthcare, and other development priorities, undermining their long-term development and growth prospects.
Finally, mounting fiscal pressures in advanced economies can weaken demand for imports from EMDEs. Through these channels—higher borrowing costs, tighter financing conditions, currency depreciation, higher inflation, shrinking fiscal space, and reduced exports—EMDEs are increasingly bearing the consequences of fiscal and monetary decisions made in advanced economies, over which they have no control. The bottom line: Advanced economies are accumulating the debt, but EMDEs are increasingly paying the price.
OCTOBER 12 | 1:00 AM ET
The IMF just reviewed some of its key policies. What will change?
Four major reviews published in recent days offer a candid account of the IMF’s core work. They cover debt sustainability in low-income countries, program design and conditionality, the financial sector assessment program (FSAP), and economic surveillance. Taken together, the reports call for more realistic analysis, greater selectivity, better integration across policy areas, and stronger follow-through. Here’s a quick rundown:
- In the past, the low-income debt sustainability framework has concentrated on external debt in foreign currency. Domestic borrowing in local currency has grown in importance, however, opening up new avenues for shocks and risk transmission. The review proposes new indicators for gross financing needs and interest payments, a domestic-debt module, and a stress test for domestic financing. This matters because an incomplete diagnosis can delay debt restructuring, encourage additional lending into an unsustainable situation, and eventually impose larger costs on citizens and creditors alike.
- The review of IMF program conditionality calls for more credible assumptions underlying programs’ macroeconomic frameworks, stronger contingency planning, and better sequencing of structural reforms. For the latter, it suggests that programs develop a medium-term reform strategy centered on measures critical for program success. This is an implicit acknowledgment that programs can become overloaded: Excess conditionality can consume scarce administrative capacity and distract from the reforms on which recovery actually depends.
- The surveillance review seeks sharper prioritization for the IMF’s country work, clearer tests of macroeconomic relevance for topics that are being covered, stronger macrofinancial analysis, and more contingent policy advice. At the same time, it also asks staff to deepen work on external spillovers, AI, structural policies, and emerging risks. These are legitimate subjects but, without clear prioritization, Article IV consultations may fail to convey the fund’s most consequential advice. Indeed, the question of how the IMF should communicate its advice was not a subject of the review, an important shortcoming that hampers the traction of IMF policy advice.
- The FSAP review responds to an increasingly complex global financial system by proposing more modular and risk-based assessments, closer integration with Article IV consultations, and more prioritized, actionable recommendations. Indeed, the program’s remit now extends well beyond its initial bank focus to include nonbank institutions, digital finance, cyber threats, climate risks, and cross-border interconnections. Again, the risk is dilution of resources and weak follow-up that can leave material vulnerabilities unresolved between assessments.
These are sound recommendations, but they are also familiar from earlier reviews. This creates grounds for skepticism about whether IMF management and the Executive Board will heed their own advice this time.
The ultimate test for the IMF to operate differently will arise in everyday program decisions, especially in cases involving large exposures and surveillance outcomes of shareholders that pose risks for the global economy. Those are precisely the cases where politically influenced judgments can carry the greatest costs.
To assess whether these recommendations gain traction, the IMF could publish an annual implementation scorecard. For major deviations, the institution should explain the reasons for departing from the new guidance. This would preserve the discretion required for country work while making review outcomes more transparent. Review departments would remain responsible for consistency, and management and the Executive Board would be placed on the record for the institutional choices that follow.
Without such visible accountability, the next review cycle five years from now is likely to return to many of the same questions about realism, selectivity, integration, and follow-through. By then, the IMF may again look back on program failures or surveillance misses that could have been avoided by applying the lessons so convincingly presented by its own staff over the past few weeks.
OCTOBER 12 | 12:12 AM ET
Three shocks are pushing up long-term interest rates and threatening the stock market
The world economy is undergoing three concurrent shocks—the energy supply shock, the AI demand shock, and the public sector debt shock. They interact to push up long-term interest rates—which could pose economic and financial risks.
Conflict in the Middle East has disrupted the supply of oil and gas—raising crude oil prices to more than one hundred dollars a barrel, which is fueling median one-year median global inflation expectations to 3.9 percent, the highest since May 2023. This has forced major central banks to tighten their monetary policy stances, pushing up bond yields. Ten-year US Treasury yields have reached their highest levels since 2002.
AI companies have significantly stepped up their borrowing to fund their investment in AI infrastructure. Goldman Sachs has estimated that global AI investment expenditure would exceed one trillion dollars in 2026—or 0.9 percent of global GDP. This is projected to rise to 1.3 percent in 2027 and 1.4 percent in 2028, boosting global GDP growth by between 0.5 percent and 1.5 percent in the period ahead.
At the same time, public debt of advanced economies has reached a new high of $102 trillion or 91 percent of global GDP. Driving the rising public debt level in advanced economies has been persistently high fiscal deficits of 5 to 6 percent of global GDP, generating substantial interest payments.
The three shocks mentioned above appear to impact the three key components making up long-term nominal interest rates. The AI funding need has triggered a rise in the equilibrium real interest rate r*, estimated to be 2.95 percent as measured by the Treasury Inflation-Protected Securities (TIPS) yields. The energy supply shock has driven the inflation premium—the price investors demand to compensate for the risk of inflation increases—estimated at 2.36 percent. These make up the ten-year nominal Treasury yield at 5.31 percent as of October 5. The term premium—to compensate investors for holding long maturity securities—which is embedded in the real rates and inflation premium, has been estimated at 1.08 percent.
IMF Managing Director Kristalina Georgieva noted in her curtain-raiser speech for the meetings that high rates are likely to remain over the long term, with negative implications for economic growth prospects and equity valuation. Stocks in the S&P 500 index are richly valued at around 26.6 in price-to-earnings (P/E) ratios—well above the long-term average of 16.2. More concerning is the fact that the ten-year Shiller CAPE (Cyclically Adjusted P/E) ratio has exceeded 41, about 2.3 standard deviations above the modern-age average—putting stocks in strongly overvalued territory. Moreover, there exists an extreme concentration risk in AI and high-tech sectors—with ten top companies approaching 40 percent of the S&P 500 index. This could give any market correction a wider systemic spillover impact than otherwise would be the case.
Economic growth drivers have also been concentrated in the AI/high-tech sector, whose capital expenditures account for 1.8 to 2.5 percent of US GDP, but has contributed about half of US GDP growth in recent quarters.
In short, persistently high interest rates, driven by a variety of factors, pose a threat to currently overvalued US equity markets burdened by extreme concentration risk; the materialization of these risks would negatively impact economic growth prospects. Policymakers can ameliorate this challenging situation by putting their fiscal houses in order—reducing budget deficits to relieve some pressure on interest rates and hoping that all the AI investment will soon produce productivity improvement and stronger growth, which could make the economy and financial markets more resilient to high rates and equity valuations.
OCTOBER 6 | 9:00 AM ET
The new geoeconomics of Bretton Woods
When government officials, investors, policymakers, and academics gather in Bangkok on October 12 for the 2026 IMF-World Bank Annual Meetings, they will confront a global economy markedly changed since their 2023 meeting in Marrakesh. Heightened by geoeconomic competition, protectionism, tariffs, and economic and military conflict, the global trade, investment, and supply chain maps are being redrawn, and a new global order is in the making. Against this backdrop of increasing global fragmentation, the main challenge facing the Bretton Woods Institutions is preserving international economic cooperation and coordination as the issues facing member economies and their populations become ever more global and transnational in scope.
Trade, investment, technology, finance, energy, and critical minerals are increasingly intertwined with national security. The United States, China, the European Union, and a growing number of middle powers are using tariffs, subsidies, export controls, investment restrictions, industrial policy, and supply-chain strategies to protect domestic industries and secure strategic advantage. Production networks are being reorganized around resilience and political alignment, while global imbalances are widening. At the same time, developing countries are facing extraordinary pressure from conflict, high debt, fiscal strain, climate risks, demographic change, and rapid technological transformation (namely AI and data centers). Globalization is not ending—it is becoming more contested and fragmented.
Figure 1. Number of new harmful trade policy interventions
This shift presents a fundamental challenge for the IMF and World Bank. Both institutions were established on the belief that international economic integration, backed by major powers, could generate shared benefits when accompanied by macroeconomic stability, development finance, and international rules. That consensus has largely frayed. The institutions’ largest shareholders increasingly pursue economic policies shaped as much by strategic competition as by growth, while developing countries often bear the consequences of decisions over which they have limited influence and responsibility, such as climate change, trade disruptions, high interest rates, and rapid AI developments.
Read more from our collection of essays on the future of Bretton Woods, and watch our experts discuss the paper at today’s event.
Image: October 10, 2026, Bangkok, Thailand:: Promotional displays and banners for the 2026 Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group are seen at the Queen Sirikit National Convention Center (QSNCC) in Bangkok, ahead of the meetings scheduled for October 12-18. (Watsawat Koktabtim/JNA via ZUMA Press Wire)