Developing countries already spend more than 10% of their revenue on interest payments. In Bangkok this week, finance officials will weigh IMF loan rules that could demand fewer but deeper reforms as war, energy shocks and rising rates tighten the squeeze on people far from the rooms where those decisions get made.
“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.”
Who Sets the Terms
The IMF says public debt has reached its highest level since World War Two and will exceed 100% of gross domestic product before 2030. Advanced economies, led by the United States, have the highest debt-to-GDP ratios. Emerging markets and low-income countries face particular exposure to capital outflows seeking higher US rates, El Niño and a lack of investment in AI.
Developing countries will have to renegotiate high public debt at higher interest rates. During the early COVID crisis, G20 leaders suspended debt-service payments for the poorest countries. G20 diplomats now say there’s little appetite to repeat that move, with high debt and political pressures standing in the way.
The proposed shift in IMF loan conditions comes as countries cut spending to meet debt payments. Fresnillo said Kenya avoided debt restructuring by cutting public spending and trying to raise taxes, but those changes sparked significant protests, especially among young people. The ledger’s balance sheet has a human cost.
War Hits the Price of Survival
The US-Israeli-led war with Iran and the closure of the Strait of Hormuz have helped drive a major energy supply shock. Iran’s closure cut off about 20% of the world’s oil supply. The war began on February 28, and its inflation and hardship are expected to dominate the Bangkok meetings, pushing other conversations aside.
World Bank President Ajay Banga told Reuters that global growth held up better than feared when the strait closed, but pressures are building again. Soaring diesel and fertilizer prices are hitting at once, alongside a looming “super” El Niño weather effect. Experts say El Niño could cause 450,000 heat-related deaths.
“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,” Banga said. The World Bank isn’t revising down its global forecasts, but it’s watching developments closely.
The IMF has signalled little change to its forecast of 3% global growth in 2026 and may slightly raise its forecast for next year. It expects downgrades for some countries, 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 said food and energy price spikes increasingly fuel crises, prolong inflation expectations, worsen poverty and threaten economic stability.
Emergency Reserves, Political Pressure
Under pressure from US President Donald Trump, G7 countries agreed to release 100 million barrels of diesel and crude oil from emergency reserves. Trump wants lower gasoline prices before November elections that could see his Republican Party lose control of Congress. On Friday, he announced a deal with Russia to provide more diesel to global markets and a temporary waiver of US sanctions designed to deprive Moscow of revenue for its war on Ukraine. Ukrainian President Volodymyr Zelenskiy quickly criticised the move.
More than 1 billion barrels of oil have been released, mainly from onshore commercial inventories, since the war began. Industry executives say accessible oil storage is running low. The market is more fragile, adding pressure to prices.
IMF Managing Director Kristalina Georgieva warned in her speech previewing the meetings: “Winter is coming.” Fresnillo said the IMF risked losing credibility unless it acknowledged the severity of the crisis facing developing countries. “As long as they continue with the governance structure that they have, they are becoming less and less relevant,” she said. The officials will meet in a city of 9 million residents, as more than 10,000 travelers head to Bangkok and flight routes through the Middle East raise security concerns following recent attacks on Saudi airports.