Global Finance Leaders Convene Amid Middle East Conflict, IMF and World Bank to Downgrade Economic Forecasts
Finance leaders from around the world are set to gather in Washington this week, with their discussions overshadowed by the ongoing Middle East conflict. According to a Reuters report, the International Monetary Fund (IMF) and the World Bank are anticipated to revise their economic projections downward, lowering growth forecasts and increasing inflation estimates as the war disrupts global economic stability.
Third Major Shock to Global Economy Following Pandemic and Ukraine War
This conflict represents the third significant shock to the global economy in recent years, following the Covid-19 pandemic and Russia's invasion of Ukraine in 2022. It adds fresh pressure to an already fragile recovery, complicating efforts to sustain economic momentum worldwide.
Top officials from the IMF and World Bank have indicated that emerging markets and developing economies will bear the brunt of the impact, facing higher energy prices and supply chain disruptions triggered by the war. Before the conflict began on February 28, both institutions had planned to upgrade their growth outlook, buoyed by resilience in global economic activity despite previous challenges such as tariff measures introduced by the US.
Revised Projections Highlight Severe Economic Strain
The World Bank now estimates growth in emerging markets and developing economies at 3.65 percent in 2026, a decrease from the earlier projection of 4 percent. It warns that this figure could plummet further to 2.6 percent if the conflict persists. Inflation in these economies is expected to rise to 4.9 percent, up from 3 percent, with a potential spike to 6.7 percent in a worst-case scenario.
The IMF has issued a stark warning, noting that approximately 45 million more people could face acute food insecurity if disruptions to fertiliser supplies continue. In response, both institutions are preparing to enhance support for vulnerable economies, even as public debt levels remain elevated and fiscal space is constrained.
Emergency Support and Fiscal Caution Advised
The IMF estimates that low-income and energy-importing countries may require between $20 billion and $50 billion in emergency support in the near term. The World Bank has stated it could mobilise about $25 billion through crisis response tools immediately, with potential funding up to $70 billion over six months if necessary.
However, economists caution against broad-based fiscal measures to offset rising prices, warning that such steps could exacerbate inflation. Instead, they advocate for targeted and temporary support to mitigate economic hardships without worsening the inflationary spiral.
Leadership and Global Coordination Challenges
World Bank President Ajay Banga emphasized the importance of leadership, noting that fiscal and monetary discipline have helped economies weather past crises. "But this is a shock to the system," he added, highlighting the unique challenges posed by the current conflict.
Countries now face the dual challenge of containing inflation while sustaining growth and addressing long-term issues such as job creation for an estimated 1.2 billion people expected to enter the workforce in developing economies by 2035.
The crisis unfolds against a backdrop of a more fragmented global landscape, with heightened tensions between the United States and China and a weakened ability of the Group of 20 (G20) to coordinate responses. The United States, currently holding the G20 presidency, has excluded South Africa from participation, complicating efforts to build consensus among major economies.
Expert Insights on Multilateral Support and Debt Vulnerabilities
Josh Lipsky, chair of international economics at the Atlantic Council, noted that statements from the IMF, World Bank, and other multilateral institutions aim to reassure markets and signal continued support for vulnerable economies. "It's a signal to private creditors. This is not a time to flee countries that are in problematic waters," he said, emphasizing that these economies will have backing from international financial institutions.
Analysts warn that the crisis could prove more challenging for emerging economies than previous shocks, given weaker buffers and rising debt levels. Mary Svenstrup, a former senior US Treasury official, pointed out that many such economies entered the crisis with higher debt vulnerabilities, lower reserves, and reduced fiscal space.
"We need to have this crisis be a catalyst for IMF stakeholders to really rethink how the Fund supports vulnerable countries with the recognition that we're going to be seeing more global shocks," she said, advocating against sacrificing growth for the sake of rebuilding buffers.
Martin Muehleisen, a former IMF strategy chief, suggested that the IMF should work with donor nations to accelerate debt restructuring and help countries escape prolonged debt cycles, linking fresh lending to credible debt-reduction plans.
Eric Pelofsky, vice president at the Rockefeller Foundation, highlighted that low- and lower middle-income countries paid twice as much to service debt in 2025 compared to pre-pandemic levels, leaving limited resources for social spending. "This new conflict threatens any recovery that occurred since the pandemic or the Ukraine war," he said, warning of a long-term debt-growth-investment trap for affected nations.
