Kevin Lynch and Paul Deegan

April 9, 2023

The 2023 Spring Meetings of the World Bank Group (WBG) and the International Monetary Fund (IMF) will take place this week in Washington, DC. In advance of the meetings, Kristalina Georgieva, IMF Managing Director, delivered a curtain-raiser about some of the themes that will be on the table.

She began by noting that the past three years feel like “climbing one great hill after another, only to discover there are many more to come.”  First was COVID, then Russia’s invasion of Ukraine, followed by inflation and a cost-of-living crisis that hit everyone. Despite these challenges, she notes that we have been resilient climbers, although the path back to low inflation and robust growth will be elusive and challenging.

After a strong recovery in 2021, Russia’s brutal attack on Ukraine tanked global growth almost in half last year from 6.1 to 3.4 percent. This year, with high and still rising interest rates to combat inflation, and the disruptions caused by the continuing war in Ukraine and widespread sanctions against Russia, global growth will be sub-three percent. The bright spots will be India and China, which will account for about half of all global growth. While higher interest rates will weigh on demand in North America and Europe, they are particularly painful for low-income countries as they are accompanied by weak exchange rates which raise the costs of debt servicing payments and imports. By any measure, it looks like near- and medium-term growth will remain weak.

Georgieva identified three tough hills that we still have to climb:  fighting inflation and safeguarding financial stability; improving medium-term prospects for growth; and fostering solidarity to reduce global disparities.

Fighting Inflation and Safeguarding Financial Stability: Central banks may have been late in raising interest rates initially, but when they got in gear they did so at the fastest and most synchronized pace in decades. Despite their efforts, core inflation has remained stubbornly high. More recently, that fight become more complex with risk management failures at specific banks as well as supervisory lapses in the United States and Switzerland. On the fiscal side, further efforts to reduce budget deficits are critical to support the fight against inflation and create fiscal space to deal with future crises. Here in Canada, Budget 2023’s higher deficits and lack of credible fiscal anchors leave us wanting in relation to the IMF policy prescriptions, while efforts to support the most vulnerable, especially those still struggling with the cost-of-living crisis, are appropriate for the times, where many are feeling the inflation pinch.

Improving Medium-term Prospects for Growth: Growth is expected to be around 3 percent over the next five years. That’s the lowest medium-term growth forecast since 1990, and well below the average of 3.8 percent from the past two decades. The obvious way to improve growth is by boosting productivity by accelerating the digital revolution, improving the regulatory environment, and investing in human capital, and Budget 2023 offered little to improve medium-term growth. The IMF also argues for massive investments by all countries in renewable energy capacity – something that was front and center in Budget 2023.

Fostering Solidarity to Reduce Global Disparities: The IMF has provided nearly $300 billion in new financing for 96 countries since the start of the pandemic. Yet, for the most vulnerable countries, it’s not enough and they will need additional support from wealthier industrialized countries to fund the longer-term energy transition as well as nearer-term debt pressures –nearly a quarter of emerging economies are at high risk and facing “default-like” borrowing spreads. Multilateralism and a rules-based international system is under great pressure, something the IMF notes with great concern, as is globalization itself as global trade has grown less than global GDP over most of the last decade.

Thorny issues indeed. We’ll provide an update on how countries intend to tackle Georgieva’s three hills after the meetings wrap up on April 16th.

Contributing Writer Kevin Lynch is a former Clerk of the Privy Council and former Vice Chair of BMO Financial Group.

Contributing Writer Paul Deegan is a former public affairs executive at BMO Financial Group and CN Rail, and served in the Clinton White House.