The world’s finance ministers and central bank governors are gathering in Washington DC for the Annual Meetings of the International Monetary Fund (IMF) and World Bank (WB) from October 21 to October 26, 2024. They will be confronted with a very complex and difficult situation—including five important issues they must address. Despite intense geopolitical contention that has stymied international cooperation on many fronts, there is a chance that the October gathering could lead to agreements to stabilize a volatile global economy. It is important such an opportunity not to be missed.

1. Policy coordination to ensure a global soft landing

Major countries’ economies, including those of the United States, China, and many in Europe are in similar, negative cyclical circumstances. They share a common interest to engineer soft landings for their economies as headline inflation rates slow despite persistent services inflation, and employment growth weakens while unemployment rates rises. China has been particularly mired in deflation. Its gross domestic product (GDP) price deflator—a comprehensive measurement of price changes—has remained in negative territory for five consecutive quarters, amid a balance sheet slowdown triggered by a property sector crisis. All the major countries could benefit from coordinating their stimulative policy measures to generate positive feedback effects.

Doing so would be an opportune moment for the Group of Twenty (G20)—which will gather during the annual meetings—to deliver on their mission as the premier forum for international policy coordination. They could start by agreeing on a set of measures—such as coordinated easing moves—to ensure a soft landing for the global economy. In particular, interest rate cuts announced by major central banks, especially the US Federal Reserve (the Fed), would revive bond flows to emerging, developing economies. The IMF can play a catalytic role in this endeavor by providing analytical support for coordinated monetary easing coupled with appropriately supporting fiscal policy measures. At the same time, it should safeguard government debt sustainability where necessary. After all, a soft landing is the base case scenario in the IMF’s latest growth estimates, which show global GDP growing at 3.2 percent and CPI slowing to 5.9 percent in 2024.

2. Additional measures to support low income countries in debt distress

The IMF recently outlined its latest proposals to strengthen its support for low-income countries at risk of, or already in, debt distress. These countries are increasingly vulnerable—the external debt stock of low- and middle-income countries, excluding China, has more than doubled since 2010 to $3.1 trillion. The IMF has pointed out that the G20 Common Framework has already made progress to address this challenge. The framework has produced a debt restructuring agreement for Zambia and brought together all major stakeholders in sovereign debt to discuss and clarify key restructuring issues in the Global Sovereign Debt Roundtable.

The IMF has focused on three sets of additional measures. First, it is promoting fiscal reform to mobilize domestic resources, including improved tax revenues and spending. Second, the IMF is driving international support to facilities giving grants or loans with low interest rates—including a generous contribution to the International Development Association’s IDA21 replenishment drive, as well as support for the IMF’s Poverty Reduction and Growth Trust. Third, the IMF is encouraging measures to relieve liquidity pressures on highly indebted low-income countries—including credit enhancement and risk sharing to lower costs associated with their debt, especially to private creditors.

Those measures would help at the margin, but the IMF should be more ambitious in its reform ideas. For example, the coverage of the Common Framework should be widened to include vulnerable middle-income countries like Sri Lanka and Pakistan. The current debt restructuring negotiation process also needs to be improved to expedite the restructuring exercise—for example, Zambia took three years to complete its debt restructuring. The improved format should include both official and private sector creditors negotiating at the same time. They could do so all together in a comprehensive setting or in parallel, with timely communication. This arrangement will help avoid delays arising from the current sequential negotiation format, which has developed based on official financing procedure. In the current process, official creditors first negotiate among themselves to provide financing assurances to the IMF to conclude a program with the member in distress. They then negotiate with private bondholders, whose outcomes are subject to official creditors’ approval on grounds of comparability of treatment.

3. How to improve WB/IMF financing support for climate action

The World Bank and the IMF have pledged to deepen their cooperation to provide analytical, technical assistance and financing support to country-driven climate mitigation and transition programs. The WB has promised to allocate 45 percent (up from 35 percent) of its lending to climate actions by 2025—a significant jump, with its potential lending having increased by $50 billion over the next ten years thanks to balance sheet optimization measures. The IMF has promoted its Resilience and Sustainability Trust (RST), which has received financial contributions from twenty-three countries and has $30 billion available to lend. So far, eighteen countries have received support by the RST. Those steps are welcome, but are nowhere near enough to meet the climate funding needs of emerging and developing countries—estimated to be $2.4 trillion per year till 2030. More needs to be done by international financial institutions to mobilize climate financing for developing and low-income countries—including calls for a significant capital increase from the World Bank.

4. Complete IMF quota formula and surcharge policy reviews

The IMF completed the 16th General Review of Quota by approving a 50 percent increase in quota contributions on an equiproportional basis—raising the Fund’s permanent lending capacity to $960 billion. It has also created the twenty-fifth executive directorship at the IMF Board for Sub-Saharan Africa. Both of these measures will become effective in November 2024. It also mandated Fund management to review and recommend changes in the IMF quota formula and quota/vote distribution to better reflect the relative weights of member countries in the global economy by June 2025. In addition, the Fund will review how to reform its surcharge policy, which has outlived its usefulness—to be considered in the October annual meetings. The IMF should complete these reviews expeditiously to strengthen its legitimacy in the eyes of its many developing country members.

5. Navigating the geopolitical conflict and geoeconomic fragmentation

Finally, the IMF must navigate the rising mistrust engendered by geopolitical disputes, which make it difficult build the consensus necessary for smooth operations. Fund management and staff have approached these challenges in a practical manner, leveraging its universal membership and mandate. The IMF has analyzed the increasing costs of geoeconomic fragmentation in trade and investment flows, leading to efficiency losses in the global economy and disproportionately hurting low income countries. It has raised alarm about the proliferation of trade protectionist measures, urging major countries to limit negative impacts on developing and low-income countries. Since the multilateral approach has failed to move the World Trade Organization forward, the IMF has recommended a plurilateral approach—getting a small group of like-minded countries to reach new trade agreements, which would be open for others to join later on. As many major countries begin to favor industrial policy, the Fund has examined the policies implemented so far to differentiate between them. Some are designed well and focused on addressing market failures, while other measures aim to promote national and economic security, supply chain resiliency, and climate mitigation and transition. The latter includes goals which may not be defined well and could produce unintended harmful effects. The IMF has tried to limit the distortive effects of industrial policy through greater transparency, data sharing, and policy dialogue by way of its bilateral and multilateral surveillance and consultation with members.

If the G20 seizes the opportunity to coordinate economic policies and ensures a global economic soft landing, it could create the momentum necessary for progress in the other important issues at the October annual meetings—and in future ones—despite ongoing geopolitical conflict. Pushing for these outcomes would reaffirm the important roles of the IMF and WB in the current period of geopolitical turmoil. Progress on climate financing and navigating geopolitical conflict would be an especially important legacy, which leaders of those institutions would like to build.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center, a former executive managing director at the Institute of International Finance and a former deputy director at the International Monetary Fund.

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Image: Washington DC USA,Dec 18 2019/A meeting between the IMF and the World Bank hosted Finance Minister and Bank Governors.Held twice a year in Washington in the spring and fall.