Policymakers take on energy shock, rising debt at IMF-World Bank meetings

Finance ministers and central bankers meet in Bangkok this week for the annual gatherings of the International Monetary Fund and World Bank, with the global economy buffeted between the US-Iran war's energy shock, rising debt pressures and the AI boom.

The meetings run from Monday through Saturday in the Thai capital, and will see policymakers tackle some stark choices, with the IMF calling on governments to rein in spending even as vulnerable citizens'' needs may be growing in the face of surging inflation and climate risks.

The week will see a combination of high-level closed-door meetings, public events and policy announcements from the world's top economic officials.
On Tuesday, the IMF will unveil its global economic forecast, along with detailed regional outlooks through the week, as policymakers set about tackling the challenges darkening the economic horizon.

In Bangkok, IMF chief Kristalina Georgieva highlighted how the world economy was being pulled in opposite directions by the negative energy supply shock caused by the US war on Iran and the positive demand shock of the artificial intelligence technology boom.

"That shift into higher gear (from AI) is what is keeping the world economy growing at three percent," she told an event on the first day of the meetings, adding the growth was "despite the fact we are being dragged down by the energy supply shock."

At a press briefing, World Bank President Ajay Banga told AFP his message to developing countries on AI was to focus on building "small AI" applications, rather than trying to compete on capital-intensive models.

"Don't try and compete with America and China on frontier models and large data centres," he said. "You don''t have the computing power. You don't have the electricity. You don''t have the people."

Banga said AI-powered applications could run on less powerful smartphones and be used in healthcare, education, agriculture and other fields that are development priorities for low-income countries.

Chief among concerns in Bangkok will be the economic fallout of the US war on Iran, which has seen energy prices skyrocket as Tehran''s retaliatory action has targeted Washington''s Gulf allies and curtailed global oil and gas supplies.

The IMF has warned that the effects of the shock have been unequal, with developing countries reliant on imported energy hit the hardest.
Despite the crisis, the Fund has called on countries to curb spending on subsidies and instead build their fiscal buffers after years of shocks since the pandemic.

Critics say that approach is just not feasible for low-income countries, and that multilateral lenders need to do more.

"The poorer member states of the IMF and World Bank are in distress from spillovers of the Iran war, rising interest rates in the West, and a climate crisis exacerbated by El Nino," said Kevin P. Gallagher, director of Boston University's Global Development Policy Center.

"The IMF and World Bank are not meeting this moment. They need an ambitious response that provides short-term emergency liquidity alongside longer term financing to make their economic growth paths less vulnerable to these shocks."

And the needs are great, according to the United Nations Development Programme (UNDP).

The combined shocks "could leave millions more in poverty as developing countries struggle to sustain support for households," the UNDP warned in a report on Sunday.

"We are witnessing a perfect storm that could throw tens if not hundreds of millions of people back into poverty," said UNDP Administrator Alexander De Croo.

In the developing world, he added, governments are being forced to make the "impossible" choice between cutting support for their poorest citizens or risking their entire development agenda.

Advanced economies in Europe and the United States have weathered the storm from the rising energy prices better, but have not been immune to surging inflation fuelled by those price increases, which have begun to bleed into other goods.

That inflation has seen central banks around the world raise interest rates in an effort to curb rising prices, tapping the brakes on economic activity.
Still, advanced economies have seen a boom in investment in artificial intelligence technology drive stock markets to new highs and bolster economic growth.

The week will also see several key meetings on the sidelines, including of G20 finance ministers, where spiking bond yields will be high on the agenda.

A notable absence at that meeting will be US Treasury Secretary Scott Bessent, who will skip due to "domestic engagements", a department official said on Friday.