By Tim Hirschel-Burns
The World Bank and the International Monetary Fund (IMF) are not the only places where global economic decision-making takes place, but arguably, no other institutions combine such global scope and implementation power. The United Nations (UN) serves as a forum for large-scale agenda-setting, but it has relatively little ability to enact its decisions on economic policy, sustainable development, or climate action. The Group of 20 (G20) serves a similar and sometimes conflicting role with the UN, with less complete global representation but sometimes eliciting greater follow-through from major powers. Other institutions like the New Development Bank or the Asian Infrastructure Investment Bank have direct implementation power but limited membership.
This unique position of the World Bank and the IMF means that their upcoming annual meetings serve as a referendum on some of the most consequential axes of global economic and climate governance. Three intersecting questions underlie many of the issues on the agenda in Washington, D.C. this week: the respective roles of the public and private sectors, the weight given to domestic and international priorities, and the relative international roles of emerging and traditional powers.
On the first question, the World Bank and the IMF have developed a reputation as champions of limited government and open markets. However, when they were founded 80 years ago with Keynesian economics in vogue, the founders envisioned them as an international anchor for proactive governments. The World Bank would enable public investment on a global scale, while the IMF could provide liquidity support, allowing governments to counteract market cycles.
Today’s circumstances—a climate crisis that punishes inaction and development goals coming due in 2030—demand a return to the institutions’ original public purpose. While the private sector has a role to play in making climate and development investments, it will not close massive financing gaps. Only a small share of private renewable energy investment has been made in developing countries other than China; past efforts to stimulate private investment in developing countries have a weak track record and high global interest rates only further decrease the likelihood of private investment in developing countries.
Harnessing the World Bank’s public sector potential would mean equipping the Bank to scale up public financing, including through a major replenishment of the International Development Association (IDA), ambitious capital adequacy reforms in its International Bank for Reconstruction and Development (IBRD) and moving towards an IBRD capital increase. On the IMF side, it would mean retooling the institution to prioritize countercyclical, growth-enhancing programs rather than fiscal consolidation. A new report from the Task Force on Climate, Development, and the IMF lays out an action agenda for just this.
The reticence of World Bank and IMF shareholders to lean further into these reforms is in part a reflection of the second question underlying this year’s Annual Meetings: how to prioritize domestic issues versus international ones. Right now, the former is winning. Global North countries are largely looking to reshore global supply chains and cut development spending. China’s domestic challenges have contributed to a decline in international investment since its peak last decade, despite a small resurgence in recent years.
The solutions to many of the domestic challenges ailing major powers—from mounting climate impacts to immigration challenges to aging populations—demand more internationalism, not less. But scaling up international public finance through institutions like the World Bank and IMF costs money in the short-term. In the absence of sufficiently strong domestic coalitions supporting this spending, major powers’ answer to massive international financing gaps has often been to rely on deeply unrealistic assumptions of enormous increases in private financial flows and developing countries’ domestic resource mobilization.
There is one other option for countries unwilling to put up the funds required to meet global needs but also unwilling to admit it: point fingers at others. This third question—the division of labor between traditional and emerging powers—animates several of the most divisive issues on the Annual Meetings agenda.
There is general agreement on providing favorable terms to the poorest countries: the World Bank’s IDA provides grants and concessional finance, while the IMF’s Poverty Reduction and Growth Trust (PRGT) has provided zero-interest loans. But how to fund these mechanisms is more contentious.
IDA is currently undergoing a replenishment and with Global North governments’ ability to coax funding out of their legislatures seemingly flagging, maintaining, or increasing IDA resources would likely require getting new donors like China or Gulf countries to increase their pledges. The IMF recently decided to reduce surcharges on large middle-income borrowers, but it also announced the PRGT will rely on IMF internal resources—which means that interest and fees paid by middle-income borrowers will fund low-income countries in place of Global North countries’ donations and the IMF decision also includes some increases in interest costs for low-income countries.
These contests echo the contentious debate on efforts to expand the required contributors to the UN’s climate finance goal—which are currently limited to Global North countries. China’s role is central to these negotiations, which will be decided at the UN climate conference in November. China already provides significant international climate finance, but China sees this as South-South cooperation distinct from Northern countries’ responsibilities. China and other middle-income countries argue that Global North countries’ constellation of asks contains a major contradiction: they see Global North countries seeking to shift funding responsibilities onto emerging powers without adjusting their undersized decision-making power in institutions like the World Bank and IMF.
The World Bank and IMF Annual Meetings should be the place where the international community places its foot on the accelerator toward global climate and development goals. Getting to those goals will demand robust public sectors, active international cooperation, and Global North countries that lead in funding global priorities while Southern countries take on growing power and responsibility. As technical as some of the issues on the World Bank and IMF agenda may seem, they ultimately come down to those fundamental questions.
Tim Hirschel-Burns is the Policy Liaison for the Global Economic Governance Initiative at the Boston University Global Development Policy Center. Follow him on X: @TimH_B.
