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The World Bank and IMF spring meetings are taking place this week in the shadow of rising geopolitical uncertainty. Upcoming elections in the US, ongoing conflict in Ukraine and now the eruption of hostilities between Israel and Iran are all weighing on policymakers’ minds. But amid these crises, the international community must not lose sight of the pressing need to keep funding global development, health and climate initiatives.
These issues have started to take a back seat. New data from the OECD, the rich-country think-tank, shows that advanced nations’ official development assistance budgets have increased in recent years. But the majority of that rise represents funding for Ukraine and the cost of hosting refugees from Ukraine and elsewhere; more than a quarter of UK ODA last year went towards asylum costs. The amount allocated for multilateral organisations, including the World Bank, IMF, and health funds such as Gavi, the immunisation initiative, has only increased slightly overall, and even shrank in two of the last six years.
Moreover, low-income countries’ access to finance has come under pressure. A wave of countries has been flirting with default, as high rates have locked them out of bond markets. China, once the largest bilateral creditor to developing countries, has stepped back from funding, instead starting to draw back capital as loans come due. China and private creditors have also confounded the Paris Club’s efforts to restructure debt. This has forced countries into a difficult choice: endure a lengthy default like Zambia, or tighten already strained budgets like Nigeria.
As a result, many poorer countries have been unable to invest adequately in public welfare and climate mitigation. This has raised pressures on already impoverished households in nations that are also less resilient to global shocks, creating regional instability and driving more migration.
Multilateral institutions are constrained. The World Bank’s International Development Association — the arm that offers financing to low-income countries — can raise funding via capital markets. But IDA’s chief fundraiser recently told the Financial Times that its fiscal headroom was shrinking due to high borrowing costs. The IMF’s equivalent, the Poverty Reduction and Growth Trust, has also run down its capital amid unprecedented levels of lending.
IMF managing director Kristalina Georgieva, who will be re-elected this year, has built a strong partnership with the World Bank’s Ajay Banga. Both leaders should convey a clear message this week: the global community cannot afford to be distracted.
They should first push for more funding. Banga has already called for the “largest ever” funding haul for IDA this year. Georgieva should make similar calls for PRGT ahead of its funding next year, as these are the funds with the most latitude to help low-income countries. They should also continue to collaborate with credit rating agencies to see if they can better leverage their existing capital base.
Second, they should encourage donors to explore innovative financing strategies. This includes using special drawing rights — a reserve asset created by the IMF — to issue bonds on behalf of developing countries, or making it easier to transfer them.
Finally, they should focus on improving existing processes. In a curtain-raising speech, Georgieva foreshadowed that adjustments to the G20’s Common Framework for debt treatments would be a focus this week. This includes adding stricter timelines, and ensuring a more standardised treatment of different types of creditors, which has been a sticking point for China in recent restructurings.
Rising tensions in the Middle East coinciding with the spring meetings this week illustrate the spending dilemmas facing donor countries. But the imperative is clear: pay up, or things will only get worse.
