IMF, World Bank meetings leave developing economies facing policy uncertainty

Traders Union
All News
Financial Institutions
IMF, World Bank policy uncertainty

Highlights

IMF meetings in Bangkok urge fiscal tightening and economic reforms for developing countries, but unresolved risks and policy uncertainty persist.
Developing economies' average debt service payments have more than doubled in a decade to 14% of revenue, pressuring essential spending amid higher borrowing costs.
World Bank forecasts slowing growth in developing countries to 3.6% from 4.4% amid declining aid, weak investment, and fallout from regional conflicts and energy shocks.

Bangkok talks highlight unresolved risks

As reported by Reuters, the meetings in Bangkok offer mostly familiar prescriptions for lower-income countries, including narrower fiscal deficits and faster economic reforms to draw more private investment, even as policymakers say the scale of current risks is outpacing available answers.

IMF Managing Director Kristalina Georgieva says advanced economies are among the biggest contributors to budget imbalances, while debt levels in developing countries have fallen in recent years before higher global bond yields push up their borrowing costs. She says average debt service payments in those countries have more than doubled over the past decade to 14% of government revenue, squeezing spending on education, healthcare and other essential areas.

At a panel on Saturday, Georgieva says many issues remain unresolved, especially around AI. Josh Lipsky, vice president of international economics at the Atlantic Council, says the meetings miss a chance to provide practical guidance for developing economies, while Mauricio Cardenas, Colombia's former finance minister, says many policymakers leave with a sense that serious disruption could lie ahead but with no concrete roadmap for how to respond.

Conflict, aid pressure and weaker growth weigh on outlook

Geopolitical strains remain visible throughout the gathering. Tensions linked to Russia's 2022 invasion of Ukraine continue to complicate cooperation, and nearly half the delegates at an IMF steering committee walk out when Russia's finance minister speaks.

Regional conflict also disrupts the event itself, with Houthi attacks on Riyadh airport delaying the arrival of Saudi Finance Minister Mohammed Al-Jadaan, who travels overland to Qatar to catch a flight. Bangkok, still partly under water after September floods that cause nearly $200 million in damage to Thailand's industrial sector, also reflects the physical and economic vulnerabilities many developing countries face.

World Bank Deputy Chief Economist Ayhan Kose says the global economy weathers its biggest energy shock, from the U.S.-Israeli war on Iran, better than expected and avoids a recession, but growth prospects in both advanced and developing economies are deteriorating. He says growth has already fallen in half of advanced economies, while developing-country growth slows to about 3.6% from 4.4%, even as the World Bank tries to help countries prepare for AI by mobilising more private capital amid declining official development aid and persistent difficulty attracting foreign investment.

Kate Pickett, a professor at the University of York, says policymakers should prioritise more inclusive growth instead of pushing tougher structural reforms that may deepen inequality and poverty. Her warning adds to broader concerns that resilience in the current cycle may not protect poorer economies from the next external shock.

Our earlier article on sovereign borrowing risks explained how sustained fiscal expansion and ongoing geopolitical tensions are straining government finances in a higher-rate environment. We noted that emerging and frontier markets are particularly exposed because debt-servicing costs can be high relative to limited revenue bases, while energy and food price shocks linked to major conflicts add inflation pressure and worsen credit outlooks.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.