Will finance leaders meeting this week spring into action to ease the world’s economic worries?
Central bankers, finance ministers, executives, and civil-society leaders are meeting at the International Monetary Fund (IMF) and World Bank Spring Meetings this week with an ambitious economic-reform and fiscal agenda. The talks come six months after IMF Managing Director Kristalina Georgieva told the world’s economic leaders to “buckle up and keep going” in the face of multiple financial crises stemming from the pandemic, Russia’s invasion of Ukraine, global debt distress, high inflation, and more.
Amid all the uncertainty, a parade of central bank governors and finance ministers are visiting the Atlantic Council on the sidelines of the meetings and getting together with our experts to decode what is—and is not—happening behind the meeting’s closed doors. Below are our experts’ takeaways from our convenings, which feature leaders such as World Bank Group President David Malpass, and insights as the meetings unfold.
The latest from Washington
- Three new ways to support Ukraine, from Poland’s finance minister
- Sovereign debt restructuring: The kitchen lights are on, but where’s the beef?
- The UAE’s trade minister on the new multilateralism
- How Ukraine’s digital innovations will shape reconstruction
- Economic policymakers shouldn’t fall into the trap of complacency
- The IMF missed an opportunity to take on the US debt ceiling debate
- What the World Economic Outlook didn’t say
- Who’s first and what’s second is this week’s central debate
- Central banks shouldn’t use IMF projections as an excuse to get too loose again
- Inside the World Bank’s digital governance agenda
- Spain’s economy minister aims to fight ‘fragmentation’
- ‘Sustainability, resiliency, and inclusion’ must top the reform agenda, says Cameroon’s minister of economy
- Senegal’s economy minister: ‘the US private sector is missing’
- David Malpass: Today’s economic double whammy may slam development into reverse
FRIDAY, APRIL 14 | 6:13 PM WASHINGTON
Three new ways to support Ukraine, from Poland’s finance minister
As Russia’s war on Ukraine puts major stress on the Polish economy, Poland’s Minister of Finance Magdalena Rzeczkowska visited the Atlantic Council on Friday to outline three ways how Western partners and multilateral institutions can support Poland’s goal of increasing military and financial assistance to Ukraine:
- The European Union (EU) should provide funds to Poland for covering Ukraine-related expenses. Rzeczkowska drew attention to the fact that Poland’s total Ukraine-related spending, including military equipment and refugee accommodation, amounts to 2 percent of Poland’s gross domestic product. But Poland has not received funding from the EU to cover those expenses. Poland plans to increase spending both on Ukraine’s military equipment and its own defense. “It’s something that needs to be done because Ukraine is fighting for our future and freedom”, she said.
- Multilateral organizations should allocate more funding for Ukraine. Rzeczkowska said that Poland is “very engaged with the IMF and the World Bank” and praised the institutions for the “proper answer” to the war, a program that has helped maintain Ukraine’s macro financial stability. Poland pushed the IMF to allocate its funding package for Ukraine, which will close Kyiv’s immediate budgetary needs and “give financial stability to Ukraine for four years.” Moreover, the European Bank for Reconstruction and Development has provided humanitarian aid to Ukrainian refugees in Poland. Rzeczkowska said that “Poland also wants to contribute to the fund which was created for Ukraine” by the European Investment Bank.
- The Three Seas Initiative portfolio should include Ukraine’s reconstruction. Rzeczkowska believes that the Three Seas Initiative—a forum supported by the Atlantic Council—“is an important instrument for leveraging Central and Eastern European countries and building the North-South axis of infrastructure.” She argued that apart from its regular infrastructure-building and digitization agenda, the Three Seas portfolio should also include Ukraine’s reconstruction. While the Initiative struggles with the financing of projects and often requires compromises from member states, Rzeczkowska said it can be a strong and resilient instrument for Ukraine’s reconstruction and future growth of Europe.
—Maia Nikoladze is an assistant director with the Economic Statecraft Initiative in the Atlantic Council’s GeoEconomics Center.
FRIDAY, APRIL 14 | 3:03 PM WASHINGTON
Sovereign debt restructuring: The kitchen lights are on, but where’s the beef?
As the Spring Meetings of the IMF and World Bank are winding down, more details are beginning to emerge from the closed-door meetings that were held on the touchy question of sovereign debt restructuring. The atmosphere around the new Global Sovereign Debt Roundtable appears to have been friendly and constructive, no doubt helped by the fact that Chinese officials were able to participate again in person. After all, despite extensive Zoom contacts over the past months, face-to-face meetings remain indispensable for finding a path through controversial, and possibly expensive, policy disagreements.
The upshot is that the roundtable came to an agreement around several technical steps that could eventually facilitate the operation of the Group of Twenty (G20) Common Framework, but expectations for any concrete decisions or debt deals were (again) disappointed. Nevertheless, the areas of future work are concrete enough to suggest that progress on specific country cases may not be too far off. They include steps toward improving transparency around restructuring needs (where the IMF and World Bank would provide earlier insights into their debt sustainability assessments), a clarification of the role of multilateral development banks (MDBs), and further work on defining what constitutes comparable treatment of different credit classes.
While China has not yet abandoned its demand that the World Bank and other MDBs share in any haircuts to official and private creditors, the latest signal from Beijing opens room for compromise, depending on the amounts of fresh concessional financing (and grants) that may be provided by multilateral lenders. One should of course not underestimate the capacity of international finance officials to make process look like progress, and it will be primarily up to China to demonstrate its willingness to help some of its poorest creditor countries back on its feet.
China may still be hesitant to move fast, given that the long-overdue restructuring of Zambia’s debt could provide a hard-to-reverse model for the Common Framework. But there are now clear signs that the chefs are back in the kitchen, and one might hope that, with a few more ingredients, a palatable compromise may yet emerge.
—Martin Mühleisen is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and a former IMF chief of staff.
THURSDAY, APRIL 13 | 6:31 PM WASHINGTON
The UAE’s trade minister on the new multilateralism
Economic fragmentation may be the hot topic at this year’s World Bank-IMF Spring Meetings, but that does not mean that all countries have lost faith in multilateralism. Just ask Thani Al Zeyoudi, the United Arab Emirates’ (UAE) trade minister. “While others talk about de-globalization,” he said at the Atlantic Council on Thursday, “we’re focused on economic expansion.”
For Al Zeyoudi, that means establishing a wide network of trade partnerships from Israel to Indonesia, while liberalizing trade and foreign ownership regulations at home. The UAE’s aspirations to become a “global market” are vital to its economic health: With a post-hydrocarbon future on the horizon, the country is banking on finance, transport, and logistics as the foundation for future growth. But as we have heard throughout this week, the UAE is only one of a growing number of countries unconvinced by rising protectionism.
Countries in the Global South and their major hubs, like the UAE, have been some of the most vocal supporters of multilateralism. But this does not mean that these new champions are content with the trading order as it is. Al Zeyoudi argued that “there is a consensus that we need urgent reform for the multilateral trading system,” and his country has sought modernized trade mechanisms and new free trade agreements even as many of its partners pursue stricter trade controls. At this week’s meetings, we may see whether more countries heed his call.
—Phillip Meng is a young global professional at the Atlantic Council’s GeoEconomics Center.
THURSDAY, APRIL 13 | 5:13 PM WASHINGTON
How Ukraine’s digital innovations will shape reconstruction
Ukraine has emerged as an example of resilience against all odds, and on Thursday morning, Deputy Minister of Digital Transformation Alex Bornyakov discussed the digital infrastructure that will enable better outcomes for Ukrainians a year into the war. He was joined at the Atlantic Council by Mark Simakovsky, deputy assistant administrator at the US Agency for International Development’s bureau for Europe and Eurasia; Denelle Dixon, the CEO of Stellar Development Foundation; and Anatoly Motkin, president and founder of StrategEast.
The panelists discussed the Diia app, which has become a hub for services such as education and skill improvement, health care, digital identification, and other government services. “We have shown through example how the interaction between the government and the citizen can be done in the twenty-first century, ” Bornyakov said.
The panelists emphasized the resilience of technology during the war, the role of the private sector (both domestic and international) in reconstruction and development, and the challenges of corruption and accountability. “The private sector will have to be induced to go to Ukraine,” Simakovsky said. “Ukrainians will have to accelerate the reform and have to ensure that the decentralization that happened before the war is going to continue.”
Both Dixon and Bornyakov spoke about the role of women in building resilient infrastructure for the future and how technology can bridge the existing gap. The panelists also discussed innovation in payments architecture, such as central bank digital currencies, as well as the role of cryptocurrency in Ukraine’s economy.
—Ananya Kumar is the associate director of digital currencies at the Atlantic Council’s GeoEconomics Center.
THURSDAY, APRIL 13 | 2:16 PM WASHINGTON
Economic policymakers shouldn’t fall into the trap of complacency
During the IMF/World Bank Spring Meetings, some officials—in particular US Treasury Secretary Janet Yellen—have downplayed the risks and negative impacts of last month’s bank failures, repeating the mantra that major banking systems are healthy. While banking turmoil has indeed subsided, it is important to guard against being complacent about the threat of “further bouts of financial instability… [due to] stresses triggered by the tighter stance of monetary policy”—as the IMF pointed out in its Global Financial Stability Report.
Tellingly, the report estimated that almost 9 percent of US banks with assets between ten billion and three hundred billion dollars would become undercapitalized (with their Common Equity Tier 1 capital ratios falling below the regulatory minimum of 7 percent) if forced to fully account for the unrealized losses on their holdings of US Treasuries and agency mortgage-backed securities (due to rising interest rates). Going forward, if the coming recession turns out to be more severe than expected, credit risk losses on bank lending, especially in the commercial real estate sector, would be significant.
On top of banks’ interest rate and credit losses, there have been tremendous deposit outflows from banks to money market funds. JPMorgan Chase has estimated that “vulnerable banks” have lost about one trillion dollars of deposits in the past year. Specifically, the top three US banks (JPMorgan, Wells Fargo, and Bank of America) have revealed a huge $521 billion deposit drop over the past year. The combination of losses on assets and deposits proved fatal to the failed banks last month and could yet strike vulnerable banks again.
More broadly, banking stresses have significantly tightened financing conditions, leading to a record contraction in US bank lending of nearly $105 billion in the two weeks ending on March 29. If this continues, declines in bank lending will tip the US economy into a recession sooner than expected, causing credit losses in a negative feedback loop. Policymakers need to be aware of this trend and try their best to mitigate it.
—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 former deputy director at the IMF.
THURSDAY, APRIL 13 | 10:13 AM WASHINGTON
The IMF missed an opportunity to take on the US debt ceiling debate
Rarely have the IMF’s World Economic Outlook and associated documents been written under as much uncertainty as now, with two significant bank failures happening in the middle of the drafting process. Yet, the IMF has managed to get together a set of sensible reports, with the uncertainty reflected not so much in this year’s growth projections than in the fairly sober medium-term outlook and the extensive discussion of risks.
The reports highlight the tight constraints on growth and policy faced by policymakers around the globe, and the IMF is right that, barring major financial shocks, monetary policy will need to focus on bringing down inflation expectations and fiscal policy will need to be supportive in this regard.
Given that they are vetted by the IMF membership in what is usually a very long board discussion, it is normal that the reports end up a little on the bland side, with carefully worded country-specific references, if any. Still, it is surprising that there is no discussion of the debt ceiling talks that currently appear stalled in the US Congress. The risk of a breach of the United States’ fiscal obligations, even if temporary, would have major repercussions both for the United States and the world economy—and possibly for the broader global financial system.
The IMF missed a major opportunity this time around to remind the United States of the severe consequences for itself—and the rest of the world—of not living up to its responsibilities as the issuer of the world’s major reserve currency. One would hope that IMF delegates still use these Spring Meetings to drive home this point to their US counterparts.
—Martin Mühleisen is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and a former IMF chief of staff.
WEDNESDAY, APRIL 12 | 7:42 PM WASHINGTON
What the World Economic Outlook didn’t say
On Wednesday, Atlantic Council senior fellows gathered to discuss the World Economic Outlook (WEO) report that was released by the IMF this week. The WEO is published twice a year and presents the IMF’s analysis of global economic developments over the near and medium term. This year, the report comes in the midst of tightening financial conditions in most regions and the aftermath of a banking crisis. The IMF forecasted that global growth will slow from 6 percent in 2021 to 2.7 percent in 2023.
The former IMF officials led a discussion to decode the WEO and address which elements they felt were missing. While participants cannot be quoted directly as the conversation was conducted under Chatham House rules, the experts generally agreed that the report was missing important discussions in several areas: the US debt ceiling, artificial intelligence, structural reforms to address aging populations and declining productivity, and the normal analysis of specific countries or regions. The group talked about the report’s increased attention toward economic fragmentation despite the political sensitivity of this issue. In addition, they discussed the potential for stagnation versus stagflation and the complexity of debt relief with China and private creditors. The experts also gave a defense of the WEO and why it matters in an economically divided world.
—Jessie Yin is a young global professional at the Atlantic Council’s GeoEconomics Center.
See more expert reactions from our WEO roundtable:
WEDNESDAY, APRIL 12 | 4:13 PM WASHINGTON
Who’s first and what’s second is this week’s central debate
Whether the topic at hand is COVID-19 debt fallout, the Ukraine conflict, climate finance, food security, or supporting small states, a common theme in deliberations thus far during the IMF-Word Bank Spring Meetings has been how to balance clear but competing needs in the short term versus the medium and long term. The threat of a “lost decade” of global growth adds urgency to figuring a path forward quickly.
There does seem to be consensus that multilateral financial institutions—and indeed, the entire global financial and development system—need to walk and chew gum at the same time. That is, they need to respond to urgent and basic needs, such as widespread food insecurity, while simultaneously investing in what is needed for economic recovery and inclusive growth; for example, investing in infrastructure and health systems. Some argue education is a medium-to-long term economic development need, but the 70 percent of the world’s ten-year-olds in low- and medium-income countries who cannot understand simple text and the hundreds of millions of unemployed youth might disagree. Climate change is seen as both an immediate and an existential threat—and, increasingly, a market opportunity.
The debate this week in Washington, then, is less about which crises or challenges to address, and more about who should do what, when, and how. There are arguments for the IMF returning to a focus on liquidity and macro-fiscal and short-term stabilization, while the World Bank should focus on medium- to longer-term recovery and economic growth and development. It is too soon, however, to know if the arguments for this way forward will win out. Importantly, there is agreement that to tackle these problems both sides of 19th Street, along which the institutions sit (with the International Finance Corporation just up the road), need to incentivize and mobilize more private-sector capital and engagement, and better coordinate with other multilateral and bilateral agencies. Watch this space.
—Nicole Goldin is a nonresident senior fellow at the GeoEconomics Center and global head of inclusive economic growth at Abt Associates, a consulting and research firm.
WEDNESDAY, APRIL 12 | 11:25 AM WASHINGTON
Central banks shouldn’t use IMF projections as an excuse to get too loose again
The IMF’s World Economic Outlook expects global growth to remain around 3 percent in the next few years—lower than the 3.9 percent annual average from 2000-2009 and 3.7 percent from 2010-2019. This low growth estimate is based on expectations of a return to secular stagnation driven by long-term trends such as aging populations and slowing productivity growth, pushing the natural real interest rate (known as r*) to ultra-low levels comfortably below 1 percent.
This may or may not be the case. But the World Economic Outlook does not clearly mention the chance that secular stagflation is equally likely as secular stagnation to happen—especially since geopolitically driven fragmentation will likely reduce output and increase costs and prices. This comes on top of the fact that deglobalization has reversed the disinflationary benefits of the globalization period when hundreds of millions of low-wage workers in China and other emerging markets joined the global economy.
Consequently, the possibility of ultra-low r* should be viewed cautiously, as both inflation and nominal interest rates may be higher than in previous decades. Central banks should not use that as an excuse to implement extraordinary loose monetary policies like they did in the decade or so after the Global Financial Crisis—policies that boosted financial asset prices, causing recurring financial instability and now persistently high inflation requiring central banks to sharply raise interest rates. This is a hard-earned lesson that should not be quickly forgotten.
—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 former deputy director at the IMF.
TUESDAY, APRIL 11 | 5:49 PM WASHINGTON
Inside the World Bank’s digital governance agenda
As global conversations accelerate around digital-first governance, the emerging agenda must be based on “inclusion, competition, and trust,” said Priya Vora, managing director at Digital Impact Alliance (DIAL).
Vora spoke Tuesday at an Atlantic Council event along with Arturo Herrera Gutiérrez, global director for governance at the World Bank, and Tim Murphy, chief administrative officer at MasterCard, to discuss how the World Bank should address digitalization.
Participants in the roundtable, conducted in partnership with the Mastercard Policy Center for the Digital Economy, had one clear message: “The public sector cannot sit back anymore.” The real role of the US government, as Vora underscored, is to create the tools for an equitable and safe digital economy, then lead by setting global standards.
This process starts with people-centric innovation coupled with comprehensive regulation. Gutiérrez stressed that countries cannot simply provide a technical solution, rather they need to create an “engagement strategy” to best inform consumers about the benefits and risks of that technology.
The United States, as Murphy noted, is falling behind. As countries trend towards digitalization, Murphy warned about the threat of fragmentation, in which different countries have their own siloed digital priorities and issues of privacy, data protection, and consumer transparency are often ignored because of a focus on geopolitical competition. Therefore, the panelists agreed, global leadership and cooperation are crucial, especially to understand both the negative and positive opportunities of technology development.
The World Bank’s governance agenda will need to adapt to reflect the dynamics of the digital economy, including issues of privacy, cybersecurity, consumer protection, and sustainability. The next wave of innovation should be about “giving more tools of transparency and control to people,” said Vora.
—Alisha Chhangani is a program assistant at the Atlantic Council’s GeoEconomics Center.
TUESDAY, APRIL 11 | 2:03 PM WASHINGTON
Spain’s economy minister aims to fight ‘fragmentation’
Nadia Calviño, Spain’s vice president and minister of economic affairs and digital transformation, declared on Tuesday that economic fragmentation would be a “lose-lose” situation for major economies. At an event at the Atlantic Council, Calviño noted that a “massive tectonic plates shift” is taking place within the post-World War II geopolitical order that has benefited the global economy. Economic ties are increasingly linked to geopolitical allies, and new research from the IMF shows that if geoeconomic fragmentation were to deepen, the global economy would contract by about 2 percent. This contraction would be far worse for developing economies.
Calviño believes that the World Bank and IMF will play key roles in avoiding such fragmentation and ensuring prosperity for all. Difficult discussions around debt relief, climate change, and economic slowdowns should not weaken the role of the institutions as financial stabilizers and promoters of development, she said. If the Bretton Woods Institutions didn’t already exist, “we’d have to invent them now.”
As the chair of the IMF’s International Monetary and Financial Committee, Calviño has three goals for the meetings this week. First, she aims to generate a consensus on reinforcing the global safety net and supporting the most vulnerable economies. Second, she plans to deliver a message of confidence that will also bring confidence to global economic markets. And third, which would be a bonus, she hopes to build a framework to coordinate economic policies that would encourage financial stability and prevent geoeconomic fragmentation.
This will not be an easy task. But Calviño is “neither optimistic nor pessimistic but determined” to make progress on these issues in a period of global economic uncertainty and volatility.
—Mrugank Bhusari is an assistant director at the Atlantic Council’s GeoEconomics Center.
MONDAY, APRIL 10 | 6:15 PM WASHINGTON
‘Sustainability, resiliency, and inclusion’ must top the reform agenda, says Cameroon’s minister of economy
At the Atlantic Council, Cameroon’s minister of economy laid out the country’s economic trajectory in conversation with Julian Pecquet, the Washington/UN correspondent for Jeune Afrique and the Africa Report. Despite modest growth in the face of significant global pressures, it is “not enough for [Cameroon] to get to [its] goals of becoming an emerging country by 2035,” Ousmane Mey said.
A “paradigm shift” is underway in Cameroon’s economic planning, the minister of economy explained, as the country continues to learn from the disruptions of the COVID-19 pandemic and the pressures of the war in Ukraine. He said that in particular, the Cameroonian government wants to “take advantage of the situation to reengineer [its] production capacity to be able to produce more locally, cover the national demand, and export more in this environment.” At a broader level, the African Union is also working to “integrate and trade more between the countries” to promote resiliency and insulation from global crises at a continental level, Ousame Mey explained.
At the same time, he said, the stressors climate change is imposing on Africa, even though the continent contributes the least to global pollution, are closely tied to Cameroon’s economic goals. The minister noted that “sustainability, resiliency, and inclusion” must be at the forefront of the agenda for international monetary institutions. These issues are informing Cameroon’s position going into the Spring Meetings, explained the minister, who expects the talks to focus on “the future of the [Bretton Woods] institutions,” “reforms,” and “global challenges.” Particularly on the topic of reforms, he praised the “debt service suspension initiatives” that were introduced in 2020 under the Group of Twenty common framework to alleviate Cameroon’s burden in a time of crisis. “This is certainly something we should include in the reform of the financial architecture in the future,” he said.
—Alexandra Gorman is a young global professional at the Atlantic Council’s Africa Center.
MONDAY, APRIL 10 | 5:20 PM WASHINGTON
Senegal’s economy minister: ‘the US private sector is missing’
Senegal’s newly appointed Minister for Economy, Planning, and Cooperation Oulimata Sarr has one clear message for international partners going into the IMF/World Bank Spring Meetings: “Senegal is open for business.”
In a conversation at the Atlantic Council with Julian Pecquet, the Washington/UN correspondent for Jeune Afrique and the Africa Report, Sarr acknowledged that she wants “the private sector to a play a much bigger role” in the country’s economy, which has grown rapidly in the past few years. In particular, “the US private sector is missing” in Senegal, she acknowledged, because it tends to view “Africa as a whole as a risky investment place.”
A major factor that shapes these views is sovereign debt credit ratings, which have historically been administered by foreign-based entities that rely on faulty metrics, Sarr said. The rise of credit rating agencies on the continent (currently there are two) will more accurately reflect the reliability and investment potential of African economies, Sarr noted.
Ultimately, “development cannot wait,” she told US viewers, noting the urgency of the issue. “Fast-tracking” solutions is the country’s top priority in all economic considerations, from “the reform of the Bretton Woods Institutions” to the choice of partners between the US and China. The current Biden administration clearly sees “Africa as a very, very important player” and “as a land of opportunity,” but she believes that the “US can do much more.”
—Alexandra Gorman is a young global professional at the Atlantic Council’s Africa Center.
WEDNESDAY, APRIL 5 | 11:13 AM WASHINGTON
David Malpass: Today’s economic double whammy may slam development into reverse
As World Bank President David Malpass prepares to hand over the reins to his successor, he has one big worry about the global economy: a “reversal in development.”
“That means poverty is higher… than five years ago, that education and literacy problems are worse than they were five years ago,” he said at an Atlantic Council Front Page event on Tuesday hosted by the GeoEconomics Center. That reversal is unfolding, he explained, because of the COVID-19 pandemic and Russia’s full-scale invasion of Ukraine, which together hit the global economy with a “double whammy.”
But even if these crises come to an end, development won’t necessarily get right back on track, warned Malpass, who will be succeeded in the coming weeks by former Mastercard Chief Executive Officer Ajay Banga. Next week, the boards of governors of the World Bank and International Monetary Fund (IMF) will meet in Washington to discuss reshaping development for a new era as central banks around the world raise interest rates to fight inflation.
“The dislocation is huge,” Malpass said, explaining that countries looking to continue their growth strategies from the past decade will now see higher interest rates reflected on their contracts. Thus, instead of looking to return to pre-COVID development economics, Malpass explained, countries should be looking at this moment as “an inflection point into some new [economic] growth model”—and adjusting their strategies accordingly.
“We don’t want it to be a lost decade for growth,” Malpass said. Preventing one, he added, will require sorting out global debt restructuring and increasing the resources available to the World Bank.
—Katherine Walla is an associate director of editorial at the Atlantic Council.
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Image: Delegates arrive at International Monetary Fund headquarters building during the IMF-World Bank Spring Meetings 2023 in Washington on April 12, 2023. Photo by Yuri Gripas/ABACAPRESS.COM