World Bank-IMF meeting highlights bleak global outlook | Larry Elliott

meIn Washington, this week was a week of war, strikes, weakness, and warnings. Some of the semi-annual meetings of the IMF and world bank are boring affairs that are easy to forget; And this was not one of them.

first W – The war in Ukraine Dominate meetings and could dominate the next gathering of the two organizations in the fall as well. Despite pleas to stop the fighting, there is no indication that this will happen.

This will have dire consequences for Ukraine, poorest countries in europe The country even before the Russian invasion. The World Bank estimates the cost of destroyed buildings and infrastructure alone up to 60 billion dollars (46.7 billion pounds sterling). The International Monetary Fund says the economy could shrink by about 40% this year and that Kyiv will need external support 5 billion dollars a month Just to keep the country running.

Russia will also suffer significant damage as a result of its aggression, but the impact of the war is not limited to both sides. It leads to more expensive energy and food, while the resulting high inflation and slowing global growth mean there is a human and economic reason to end the war.

Hence the second W: figurative strike By the British, Americans and Canadians when Russian representatives began speaking at the meeting of G-20 finance ministers and central bank governors. Russia responded by blocking the release of a statement at the end of the IMF’s Main Policy Committee meeting, which would require traditional consensus.

These diplomatic maneuvers highlighted weaknesses in the multilateral system – the third western group, the G20, emerged during the global financial crisis and was supposed to replace the G7 as the main international forum for economic policymakers.

That’s logical. The G7 represents only the largest developed countries while the G20 includes a larger group of countries of strategic importance such as China, India, Brazil, Saudi Arabia – and Russia.

The G20 got off to a good start at the 2009 London Summit but later failed to deliver on its promise. It has become a talking shop as countries debate the pressing problems of the day – the need for vaccines to be widely available or the lack of an effective debt relief mechanism – but then fail to come up with the needed solutions. There is a lot of exaggeration but few common purposes, as was demonstrated last week. In no way do all G-20 members want to publicly express their dissatisfaction with what Russia is doing Ukraine.

This brings us to our fourth and final point W: The weather in Washington last week was full of warnings. The International Monetary Fund has warned that recovery from the epidemic will be a hindrance Much slower than expected And that central banks will find it more difficult to calibrate the appropriate level of interest rates. The World Bank warned that people would do it get hungry As a result of rising food prices, which may lead to social unrest. Both the International Monetary Fund and the World Bank warned of a worsening debt crisis.

The outlook is poor for developed countries like Britain, where cost-of-living pressures are already starting to affect confidence and spending. However, the odds are worse for poorer parts of the world at a time when some central banks – including the US Federal Reserve – are becoming more hawkish.

Krishna Guha, an analyst at investment bank Evercore, says: “The biggest significance of the IMF-World Bank meetings … is the acute vulnerability of non-commodity-exporting emerging market countries to a perfect storm of patchy pandemic recovery with high debt, energy price war shock Food, China growth risks, and Fed tightening.”

This is a plausible summary and echoes UN warnings that weak global demand, insufficient international policy coordination and rising debt levels from the pandemic will generate financial shock waves that will push some developing countries into a downward spiral of insolvency, recession and halting. Development.

Achim Steiner, Administrator of the United Nations Development Program (UNDP), says he is “deeply concerned” about the scale of the crisis and the speed with which it is unfolding. We are not ready to deal with this. As a result of this pandemic, many poor countries have no fiscal space left and are backing their support.” He adds that nearly 70 countries are facing a “perfect storm” of rising energy costs, rising food prices and exorbitant debt servicing costs.

W was a notable fifth by his absence from Washington last week, and that is the win. The IMF has taken some comfort from pledges of $40 billion to the Resilience and Sustainability Fund — designed to help poor countries tackle the climate crisis and other structural challenges — but Ukraine alone will need more.

Every finance minister and central bank governor knows that the war is a catastrophe for the global economy and that the costs will rise the longer it lasts. It is easy to see what defeat looks like: stagflation and deterioration of living standards in the developed parts of the world; Hunger, food riots and debt defaults in poor parts.

It’s hard to see what a victory looks like, other than an expensive one. An immediate ceasefire and Russia’s withdrawal would lower energy and food prices, reduce inflation, and make it easier for central banks to limit how high interest rates could be. A protracted war of attrition is the most likely scenario, and it will eventually lead to weak demand, a collapse in energy prices, and significantly lower inflation rates.

For now, the best that the IMF and World Bank can do is limit damage. The outlook is getting bleaker.