Last week’s meetings of the International Monetary Fund and World Bank yielded no new answers for the developing world to the questions posed by a spreading Middle East war, continuing war in Ukraine, rising debt payments and a potential AI bubble.
Not for the first time, lower-income countries are being rocked by the spillover from the actions of wealthier nations: rising debt service costs, higher inflation and the risk of falling ever further behind economically thanks to the AI boom.
What they got was the stock advice the global lenders always dish out: to shrink fiscal deficits and accelerate economic reforms to attract more private sector investment.
Kristalina Georgieva, the first IMF chief from a developing nation – Bulgaria – said advanced economies were in fact the worst offenders on budget imbalances.
She noted that developing countries’ debt levels had actually fallen in recent years, only for surging bond yields elsewhere to drive up their borrowing costs.
Average debt service payments there had more than doubled from a decade ago to 14% of government revenue, crowding out education, healthcare and other critical areas, she said.
ADVANCED ECONOMIES FOCUSED ON THEIR OWN PROBLEMS
At a panel on Saturday, Georgieva said many issues remained unresolved, especially around AI:
“We are in a place where we have many more questions than we have answers. And my alert to everybody is: Do not fall for the guys that pretend they have the answers. They are tricking you.”
Josh Lipsky, vice president of international economics at the Atlantic Council think tank, said the meetings had flunked their opportunity to come up with guidance or ways to help.
“It’s hard to talk about the developing world when the advanced economies don’t have their act together and are at risk of a fiscal crisis,” he said. “And that’s on top of political situations in many of these countries that makes development aid not a priority at the moment.”
Mauricio Cardenas, Colombia’s former finance minister and now a research scholar at Columbia University’s School of International and Public Affairs in New York, said many policymakers were left with a deep sense that “something really bad could happen” but no real roadmap to navigate the future.
READ ALSO:Tinubu Is Going – Through Lagos Coastal Highway
“The IMF and World Bank are not particularly well prepared for this new phase. They understand that something is going on, they bring in experts on AI,” he said. “But in the end, there’s no kind of specific, concrete advice on how to be prepared for something where you don’t really understand how it’s going to unfold.”
Advertisement · Scroll to continue
The geopolitical tensions that have roiled both institutions since Russia’s invasion of Ukraine in 2022 – complicating concerted action – were also evident in Bangkok when nearly half the delegates at an IMF steering committee walked out when Russia’s finance minister spoke.
Houthi attacks on Riyadh airport delayed the arrival of the head of that committee, Saudi Finance Minister Mohammed Al-Jadaan, who had to travel overland to Qatar to catch a flight.
And Bangkok itself was a stark reminder of the challenges facing developing countries, still partly under water after floods in September that caused almost $200 million in damage to Thailand’s industrial sector.
RISING INEQUALITY COULD RAISE COSTS IN LONG TERM
Kate Pickett, a professor at the University of York, urged policymakers to focus on more inclusive growth rather than forcing developing countries into tough structural reforms.
“If inequality increases, if poverty deepens, that will increase their costs in the long term,” she said. “It’s not enough to describe an economy as resilient. It’s only resilient for the rich and the privileged.”
Ayhan Kose, deputy chief economist at the World Bank, said the global economy had weathered its biggest energy shock – from the US-Israeli war on Iran – better than expected.
But while a global recession had been avoided, he said growth outlooks in both developing and advanced economies were worse than before.
Growth had already fallen off in half of advanced economies, while in developing countries as a whole, it had slowed significantly to around 3.6% from 4.4%.
“People are really worried because resilience today is not a guarantee for resilience tomorrow,” he said. “Now they are worried about what will be the next shock, because every six months, if not every three months, there is a new shock.”
While no specific initiatives were announced, he said the World Bank remained focused on helping developing countries prepare for advancements in AI, in part by mobilising more private capital, now at triple the levels of 2022.
Yet it, too, has to contend with sharp drops in official development aid and persistent challenges in attracting foreign investment to developing countries.
“The reality on the ground is the reality on the ground,” he said.
