The International Monetary Fund (IMF) and the World Bank (WB) began their annual meetings this Monday, which come at a turbulent time of international conflicts, fragmentation, low growth and high debt, in which it is more necessary than ever for governments act so that the forecasts improve.
This was stated a few days ago by the leaders of both Bretton Woods institutions, Kristalina Georgieva and Ajay Banga.
In her traditional speech prior to these meetings, the managing director of the IMF warned on Thursday of the “difficult future” due to low growth and high debt and urged governments to work to reduce it and “rebuild the buffers for the next shock, which It will surely come,” perhaps sooner than expected.
From today until Friday, high-level presentations and meetings will be held at the headquarters of both institutions where ministers, presidents of central banks and other economic authorities will participate, who will discuss the state of the world economy and future challenges.
The IMF will also present several economic reports. Among them, on Tuesday it will publish the update of its global economic outlook (the WEO report, for its acronym in English).
Georgieva said that it will be seen that “China is slowing down,” that “India and other parts of Asia are accelerating” and that the United States is doing “quite well, while Europe can do better.”
According to the latest forecasts published in July, the global economy will grow 3.2% this year and 3.3% next year, poor levels that will be maintained in the medium term.
And, according to Georgieva, although the global inflationary crisis has been overcome without entering a recession, there is little to celebrate.
“Don’t expect victory parties next week,” said the Bulgarian economist, who expressed her hope that policymakers will leave Washington “so scared” to get “to work at full speed.”
For Guatemala, the president of the Bank of Guatemala (Banguat), Álvaro González Ricci, participates as governor and in which they will also hold meetings with representatives of the country risk rating agencies and other officials.
He explained that during the meeting with the International Monetary Fund they discussed how the transmission of US monetary policy has changed since 2022.
“The US economy grew strongly after the Federal Reserve increased rates in 2022. It seems because monetary policy was less effective than usual but other factors were what generated this effect. Furthermore, it shows that the Fed’s policy was approximately 25% weaker than usual, but only temporarily,” stated González Ricci.
Public debt, the big problem
One of the main topics of these meetings will be the excessive public debt and the increase in the deficit. On Wednesday the IMF will present an update to its Fiscal Monitor, in which it will update global and regional estimates.
This past week the IMF offered a preview of the report and warned that global public debt will exceed $100 trillion or 93% of global gross domestic product by the end of this year, and will approach 100% of GDP by 2030. This represents 10 percentage points of GDP more than before the pandemic (2019).
These forecasts come in a context of concern “about the growing conflict in the Middle East and its potential to destabilize regional economies and global oil and gas markets,” Georgieva said, and with governments concerned about increasing their spending on defense and betting “on protectionism.”
Despite the current gloomy outlook, Georgieva recalled that, as her counterpart at the World Bank says, “forecasts are not destiny” and it is in the hands of governments to do much more.
Tax reforms are necessary, which “are not easy” or popular, as well as labor market reforms. Also changes to eliminate barriers that prevent the mobilization of capital and carry out policies to improve productivity, reduce bureaucracy, harness the power of artificial intelligence or boost spending on education, research and development.
Time to act, not to regret
The World Bank also views the event as an opportunity to signal the sense of urgency to act to reverse the situation and avoid a worse scenario.
In a press conference held last Thursday, Banga stated that the meetings should serve not so much to contemplate the problems but to see what multilaterals and governments can do to improve the situation.
“Every time we look back five or ten years we see that there have been very difficult circumstances in the world, but clearly we always find a way to overcome them,” he said.
The meeting occurs coincidentally two weeks before the US holds its presidential elections, in which Democrat Kamala Harris and Republican Donald Trump will face each other, an issue that will probably sneak into the hallways since its result will be decisive for the world economy in the short term.
The institutions prefer not to talk about the subject. The World Bank, Banga pointed out, does not spend time “speculating” about something whose outcome is unpredictable.
