The week-long annual sessions of the International Monetary Fund and World Bank came to an end on Saturday, overshadowed by recent violence in the Middle East and held in a nation still recuperating from an earthquake.

The prospects for a world economy weighted down by debt, inflation, and conflict, as well as the widening wealth disparity between rich and poor countries and the failing attempts to combat climate change, were all topics of discussion in the Moroccan city of Marrakech.

The main outcomes of the meetings are as follows:

“Limping” Economy

A 0.1% point decrease from an earlier projection for 2024, the new IMF outlook predicts that global economic growth will decline from 3.5% last year to 3% this year and 2.9% next year. It was approved prior to the escalation of the conflict between Israel and Hamas.

Global inflation is predicted to decline from 6.9% this year to a still-high 5.8% the next year. Central bankers expressed their willingness to halt interest rate increases if circumstances permit, in the hopes that inflation can be finally controlled without a harsh crash.

Most people believed that it was too early to predict how the conflict in the Middle East would effect the world economy, which IMF chief economist Pierre-Olivier Gourinchas described as “limping along, not sprinting.”

Debt Squeeze

The discussions came after financial markets in recent weeks pushed U.S. bond yields higher. A recurring subject throughout the meetings was the enormous debt burdens of advanced nations, from the United States to China and Italy. Ignazio Visco, governor of the Italian central bank, claimed that there was a perception that markets were “reevaluating the term premium” as investors grew uneasy about owning longer-term debt.

Joyce Chang, the global research chair at JPMorgan, put it another way. She told a panel that the Great Moderation, the two decades of largely peaceful economic conditions prior to the 2008/09 financial crisis, was finished and that “the bond vigilantes are back.”

The effort to combat climate change is one area of policy where this might have a ripple effect. The head of the IMF’s fiscal division, Vitor Gaspar, cautioned that scaling up present subsidies-based policies will result in an explosion of public debt while failing to achieve net zero emissions. “Countries will need a new mix of policies with carbon pricing at the centre,” the Fund stated.

Debt Deals and Reforms

Beyond the big developed economies, the rest of the globe faces additional difficulties due to higher policy rates, a strong currency, and geopolitical unpredictability.

As Turkey’s Finance Minister Mehmet Simsek presented its reform agenda, the country was in the spotlight. “Reducing inflation is the main structural challenge. Murat Ulgen, Global Head of Emerging Markets Research at HSBC, stated that they were working on it.

Kenya is attempting to stay out of debt crisis and, according to the governor of its central bank, wants to buy back a quarter of its $2 billion international bond maturing in June. This will increase the price of Kenya’s 2024 bond by 1.2 cents on the dollar.

Zambia eventually reached an agreement on a debt restructuring memorandum of understanding with creditors, including China and France.

Less was known about Sri Lankan progress. While talks with other official creditors are stalled, Sri Lanka stated on Thursday that it has achieved an agreement with the Export-Import Bank of China covering around $4.2 billion in debt.

Risks Skewed to Downside

According to the IMF’s Global Financial Stability Report, some borrowers would find themselves in increasingly risky situations as a result of high interest rates. It anticipated that 5% of banks worldwide would be stressed if those rates remained higher for longer, and another 30% of banks, including some of the biggest in the world, would be stressed if the world economy entered a protracted period of slow growth and high inflation.

Jostling Around for Influence

Consensus-building is becoming more difficult as a result of the conflict in the Ukraine, rising trade protectionism, and tensions between the United States and China: There was ultimately insufficient consensus to release the customary final communique at the conclusion of the meetings.

Restructuring the IMF and World Bank to better reflect the rise of emerging economies like China and Brazil was a hot topic before to Marrakech. Widespread support was given to a U.S. plan to increase the IMF’s lending capacity while delaying a review of the fund’s shareholdings. The agreement, which was unveiled on Saturday, mentioned a “meaningful increase” in quotas by the end of 2023 but provided few more details. Anti-poverty organisations have doubts about the results.

“The big theme this week is G7 countries papering over the cracks of shattered promises,” said Kate Donald, Head of Oxfam International’s Washington DC Office. “Despite the wringing of hands about the billions of dollars needed to tackle poverty and climate breakdown, there has been no sign of new money.”

(Adapted from Reuters.com)

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