Developing countries carrying high debt and rising interest costs will arrive at the IMF and World Bank meetings in Bangkok worried that new loan conditions could require deeper reforms and intensify austerity. The meetings start this week, as war in the Middle East, disrupted energy supplies and higher borrowing costs threaten global growth.
Debt and the terms of lending
The IMF says public debt stands at its highest level since World War Two and will top 100% of GDP before 2030. Advanced economies, led by the United States, have the highest debt-to-GDP ratios. Emerging markets and low-income countries, meanwhile, face capital outflows as investors seek higher US rates, along with other pressures.
Developing countries face particular exposure. They will have to renegotiate debt at higher interest rates, and interest payments already consume an average of more than 10% of revenue. During the early COVID crisis, G20 leaders suspended debt-service payments for the poorest countries. G20 diplomats say there’s little appetite to repeat that step now, citing high debt and political pressures.
Lower-income countries are also uneasy about new IMF recommendations for loan programs. The proposals would approve lending with fewer but deeper reforms, and some countries fear those changes will bring painful austerity.
“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.”
Fresnillo said Kenya sidestepped debt restructuring by cutting public spending and trying to raise taxes. Those changes sparked significant protests, especially among young people. She said the IMF risked losing credibility unless it recognized the severity of the crisis facing many developing countries. “As long as they continue with the governance structure that they have, they are becoming less and less relevant,” she said.
War pressures and energy costs
The US-Israeli-led war with Iran, and the inflation and hardship it has caused, are expected to dominate the agenda and push other discussions aside. Iran’s closure of the Strait of Hormuz cut off about 20% of the world’s oil supply. World Bank President Ajay Banga told Reuters global growth had held up better than feared, but pressures were building again.
Diesel and fertilizer prices are soaring. A looming “super” El Niño weather effect adds to the strain. Experts say it could cause 450,000 heat-related deaths. Banga said the World Bank wasn’t revising down its global forecasts, though it was watching developments closely. “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?” he said.
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 to downgrade forecasts 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. In research released Tuesday, the IMF said sharp food and energy price spikes increasingly trigger crises, raise inflation expectations for longer, worsen poverty and threaten economic stability.
Decisions by major powers
Group of Seven countries agreed, under pressure from US President Donald Trump, to release 100 million barrels of diesel and crude oil from emergency reserves. Trump wants lower gasoline prices ahead of November elections, when his Republican Party could lose control of Congress. He also announced a deal with Russia to supply more diesel to global markets and a temporary waiver of US sanctions meant to deprive Moscow of revenue for its war on Ukraine. Ukrainian President Volodymyr Zelenskiy criticised the move.
Since the war began on February 28, more than 1 billion barrels of oil have been released, mainly from onshore commercial inventories. Industry executives say accessible oil storage is running low, leaving the market more fragile and increasing pressure on prices. More than 10,000 travelers are heading to Bangkok, a city of 9 million residents. Flight routes often pass through the Middle East, raising immediate security concerns after recent attacks on Saudi airports.