Middle East war affects IMF and World Bank meetings; Slowing growth and rising inflation – The

Financial leaders from around the world are meeting in Washington this week amid conflict in the Middle East, with the International Monetary Fund and World Bank expected to cut their growth forecasts and raise inflation forecasts as the war disrupts the global economy, according to a Reuters report.The conflict represents the third major shock to the global economy after the COVID-19 pandemic and the Russian invasion of Ukraine in 2022, adding new pressure to an already fragile recovery.

Senior officials from the International Monetary Fund and World Bank noted that emerging markets and developing economies would be hardest hit by rising energy prices and supply chain disruptions caused by the war.Before the conflict began on February 28, the two institutions had expected to raise their growth forecasts, supported by the resilience of global economic activity despite the tariff measures introduced by US President Donald Trump last year.

But the war changed this course.The World Bank now estimates growth in emerging market and developing economies at 3.65 percent in 2026, down from its previous forecast of 4 percent, and warns it could fall further to 2.6 percent if the conflict continues. Inflation in these economies is now expected to rise to 4.9 percent, from 3 percent, with the possibility of rising to 6.7 percent in the worst-case scenario.The International Monetary Fund has warned that about 45 million more people could face severe food insecurity if fertilizer supplies continue to be disrupted.

The two institutions are also preparing to increase their support for weak economies at a time when public debt levels are already rising and fiscal space remains limited.The International Monetary Fund estimates that low-income, energy-importing countries may need between $20 billion and $50 billion in emergency support in the near term. The World Bank said it can mobilize about $25 billion through crisis response tools immediately, and up to $70 billion over six months if necessary.However, economists cautioned against taking large-scale fiscal measures to offset rising prices, warning that such steps could exacerbate inflation, and called instead for targeted and temporary support.“Leadership is important, and we have been through crises in the past,” World Bank President Ajay Banga told Reuters, adding that fiscal and monetary discipline had helped economies overcome previous shocks. “But this is a shock to the system.”Countries now face the challenge of containing inflation while maintaining growth and addressing longer-term issues such as job creation for the estimated 1.2 billion people expected to enter the labor market in developing economies by 2035.The crisis is unfolding amid a more fragmented global landscape, with tensions rising between the United States and China and the G20’s ability to coordinate responses weakening.The United States, which currently holds the G20 presidency, has excluded South Africa from participating, complicating efforts to build consensus among major economies.“You’re trying to work on consensus when there’s no consensus in the world right now on anything,” said Josh Lipsky, head of international economics at the Atlantic Council, quoted by Reuters.Lipsky said that statements by the International Monetary Fund, the World Bank and other multilateral institutions aim to reassure markets and signal continued support for weak economies.“It is a signal to private creditors. This is not the time to flee countries that are in problematic waters. They will get support from multilateral development banks and international financial institutions. This will not be Covid. This is something we can deal with,” he said.Analysts say the crisis could be more difficult for emerging economies than previous shocks, given weak reserves and high debt levels.Many of these economies entered the crisis with high debt vulnerabilities, low reserves, and reduced fiscal space, said Mary Svenstrup, a former senior US Treasury official who now works at the Center for Global Development.“We need this crisis to be a catalyst for IMF stakeholders to really rethink how the Fund supports vulnerable countries while recognizing that we will see more global shocks,” she said.

“We cannot ask them to sacrifice growth and development in order to rebuild reserves.”She added that any additional financing should be linked to reforms and perhaps broader debt relief.Martin Molesen, a former IMF strategy chief who now works at the Atlantic Council, said the IMF should work with donor countries to speed up debt restructuring, help countries emerge from long debt cycles, and link new lending to credible debt reduction plans.Low- and middle-income countries paid twice as much for debt service in 2025 compared to pre-pandemic levels, leaving limited resources for social spending, said Eric Pelowski, vice president of the Rockefeller Foundation.He added: “This new conflict threatens any recovery that has occurred since the pandemic or the Ukrainian war, and takes countries that were essentially defaulting, trying to get away from default, and keeps them in a long-term debt growth and investment trap.”