Finance officials from around the world will gather in Thailand this week under the shadow of a widening war in the Middle East, the biggest energy supply shock ever, and rising interest rates that together pose daunting risks to already-sluggish global economic growth.
The US-Israeli-led war with Iran, now in its eighth month, and the inflation and hardship it has caused will dominate the agenda and sideline conversations during the annual meetings of the International Monetary Fund and World Bank, being held outside of Washington for the first time in three years.
US Treasury Secretary Scott Bessent will be notably absent, dispatching two senior officials in his stead while he handles some "domestic engagements," a US official said.
His decision to skip the high-profile gathering and a meeting of the Group of 20 major economies, which the US leads this year, may frustrate counterparts amid rising tensions over the Iran war, Ukraine's battle against Russia's invasion, and the US move to impose sanctions on the International Criminal Court.
World Bank President Ajay Banga told Reuters that while global growth had held up better than feared when Iran closed the Strait of Hormuz, shutting off some 20% of the world's oil, pressures were building again. Soaring diesel prices, rising fertilizer costs, and a looming "super" El Niño weather effect that experts say could lead to 450,000 heat-related deaths are hitting at once.
Group of Seven countries have agreed to release 100 million barrels of diesel and crude oil from emergency reserves under pressure from US President Donald Trump, who wants lower gasoline prices before November elections that could see his Republican Party lose control of Congress.
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More than 1 billion barrels of oil have been released mainly from onshore commercial inventories since the start of the war on February 28, but industry executives say the amount of oil in storage that is accessible to the global market is running low, making the market more fragile and fueling pressure on prices.
Banga said the Bank was not revising down its global forecasts at the moment, but was keeping a close eye on developments. "The real thing is not just El Niño by itself; it's the combination... What's happening to fertilizer prices? What's happening to energy costs? What's happening to debt? It's that put together that creates its own challenges," he said. "And I think that will call upon all of us to be far more careful on what we prepare for in the coming months."
IMF Managing Director Kristalina Georgieva issued a similar warning in her traditional curtain-raiser speech previewing the meetings, telling the audience, "Winter is coming."
The IMF has signaled little change to its forecast of 3% global growth in 2026 and may slightly raise its forecast for next year. But some countries will see downgrades, including Ukraine, now in its fifth year of war against Russia's invasion, and Gulf countries hit by Iranian strikes and sharply reduced energy exports.
IMF research released on Tuesday showed that sharp spikes in food and energy prices are an increasingly common source of crises that drive inflation expectations higher for longer, worsen poverty and threaten economic stability.
Growing public debt leaves developing countries heavily vulnerable
One major headache for policymakers is the growing public debt burden, which is sapping growth and adding inflationary pressure. The IMF says public debt is at the highest level since World War Two and will exceed 100% of GDP before 2030.
Advanced economies, led by the United States, have the highest debt-to-GDP ratios, but emerging markets and low-income countries are particularly vulnerable, given a perfect storm of challenges: capital outflows in search of higher US rates, El Niño, and lack of investment in AI, which has mitigated negative supply shocks in the US and other rich countries.
Developing countries are particularly vulnerable given high public debt levels that will have to be renegotiated at higher interest rates. Interest payments already exceed 10% of revenue in developing countries on average.
Early in the COVID crisis, G20 leaders announced a suspension of debt service payments for the poorest countries, but G20 diplomats said there is little appetite for such action now, as high debt levels and political pressures pose bigger hurdles this time.
Many lower-income countries worry about new IMF recommendations for loan programs that call for fewer, but deeper, reforms as a condition of approval, a change many fear will lead to painful austerity measures.
"Countries are already cutting their expenditures because their debt payments are going high and because of the IMF conditionality," said Iolanda Fresnillo, who works on debt justice for Eurodad. "We fear that this review of conditionality policy is just going to make things worse."
Kenya, she said, had avoided a debt restructuring by cutting public expenditures and trying to raise taxes, but the changes sparked significant protests, especially by the young.
The IMF risked losing credibility unless it acknowledged the severity of the crisis facing many developing countries.
"As long as they continue with the governance structure that they have, they are becoming less and less relevant," she said.
Flight routes to Bangkok often route through the Middle East, posing immediate security challenges to the 10,000-plus travelers descending on Thailand's bustling capital city of 9 million residents following recent attacks on Saudi airports.
Previous IMF-World Bank meeting took place after Oct. 7
The last off-site annual meetings of the IMF and World Bank took place in Morocco just days after the October 7 massacre.
Three years later, the link between national security and international finance is clear, although finance officials at the time dismissed the Hamas attack as not an economic issue, said Josh Lipsky, vice president of international economics at the Atlantic Council.
"Obviously there have been massive global ramifications," he said. "What we're currently experiencing with Iran and the closure of the Strait of Hormuz has a direct connection with what happened three years ago."
Policymakers needed to become more agile in responding to geopolitical crises in an increasingly interconnected world, Lipsky said. "They have to be proactive, and they have to recognize that they don't live in the world they used to."