IMF meeting this week to focus on debt, rates, and U.S.-China risks

This week, the world's top finance ministers and central bankers are gathering in Washington, and investors are paying close attention, hoping to find fresh clues about everything from interest rates to banking stability to debt relief to oil prices to the strained relationship between the United States and China.

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It has been confirmed by both the Federal Reserve and the European Central Bank that stemming inflation remains one of their top priorities despite the recent banking problems, which have raised the possibility of wider risks to the economy. 

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In addition to the International Monetary Fund and World Bank's Spring Meetings that will take place from 10-16 April, there will also be a number of related events, including the meeting of the Group of 20 finance chiefs. After failing to draft a joint statement on their prognosis for the global economy in February as a result of disputes over Russia's invasion of Ukraine, the G-20 will attempt to draft a joint statement once again this month.

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There has previously been stronger cooperation at these gatherings due to cross-border banking problems and the deterioration of the economic outlook. IMF Managing Director Kristalina Georgieva warned last week about a gloomy world forecast when she gave a gloomy assessment of the global economy: "Fragmentation" is now the order of the day. In the context of a broader breakdown in bilateral engagement between the United States and China, it is unknown whether the week will bring any face-to-face meetings between top US and Chinese officials.

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“If the world's two largest economies aren't willing to work together, then how can the IMF and World Bank function effectively if they're not willing to work together as a team?” said Josh Lipsky, who is a former adviser to the IMF and now a senior director at the Atlantic Council.

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It is expected that the IMF will release its World Economic Outlook report on Tuesday morning, along with revised growth forecasts for the world. The IMF will also co-host a debt roundtable on Wednesday. G-20 meetings are set to conclude on Thursday as the group wraps up its meetings. Here is a quick rundown of some of the top issues that have been gaining a lot of attention this week: 

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Pressures on interest rates

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There is still reverberation from the Fed, Euro Central Bank, and others misreading of inflation in 2021. The Silicon Valley Bank failed last month after its bond holdings depreciated in the wake of aggressive US interest-rate hikes in order to reign in consumer prices, a collapse that resulted in many broader banking issues.

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There was a warning from China's central bank last month regarding the hazards of rapid rate hikes following the SVB incident. India is also among those nations that are unhappy with how advanced nations have handled the inflation challenge in recent years. In his inaugural message last month, Sanjeev Sanyal, an advisor to Prime Minister Narendra Modi, called on the US and the eurozone to hold off on further monetary tightening after the banking turmoil and criticized developed nations for excessive fiscal stimulus during the pandemic.

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Oil Shock

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Saudi Arabia, Russia, and other members of OPEC+ recently shocked markets and policymakers when they suddenly decided to reduce oil production by more than one million barrels a day as a surprise move. As US Treasury Secretary Janet Yellen called the move "unconstructive," other key players in major producing countries will see it as a good way to strengthen their balance sheets at a time when the global economy is forecast to slow down. With the unexpected reduction in supply, the oil prices capped a third consecutive weekly gain on Friday.

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Debt Distress

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Several struggling economies have received bailouts from the IMF in the past few weeks, including Ukraine - which was the first time the IMF had given a loan to a nation at war - and Sri Lanka, which received $3 billion. Other nations that find themselves in debt distress, including Zambia, are struggling to negotiate a restructuring with their creditors, with China urging them to reschedule their payments in order to avoid taking losses and asking the multilateral development banks to accept haircuts in order to avoid being forced into bankruptcy. 

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There has been an ongoing delay in the G-20's Common Framework, which is supposed to speed up the process of debt restructuring by creating a roadmap. IMF, World Bank, and the current G-20 chair India convened a meeting on April 12 to try and reach a greater agreement on these issues.  

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Time is of the essence when it comes to this matter. It is estimated that about 15% of low-income countries are already in debt distress, and another 45% are being subjected to high levels of debt vulnerability, and the list is growing every day. There is a great need for debt relief as it is critical for avoiding a "lost decade" of development and the World Bank's outgoing President David Malpass intends to push reforms for it this week.

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Climate Finance

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Yellen, who was chosen by the U.S. Senate to serve as chairperson of the Federal Reserve, is among those who are advocating a revamp of multilateral development banks to leverage their financing power and take on global challenges, such as climate change. Within the next decade, there could be a $50 billion boost in lending for the World Bank as part of a proposed plan.

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Ajay Banga, who is the former chief executive of Mastercard Inc. and the US-chosen successor to Malpass as president of the World Bank, has embraced this vision of the future.

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There is, however, a growing concern among nations around the world that the World Bank may take on too many mandates in the future, in a way that could undermine its ability to help poor nations reduce poverty and accelerate their development by helping them overcome poverty. Moreover, any steps taken to increase the company's leverage in a manner that puts its AAA credit rating at risk would also be scrutinized.

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The Dollar

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Various emerging markets have raised questions about the wisdom of deep reliance on the dollar as a means of cross-border trade and finance in the wake of the shock move by the US to freeze Russia's access to its central bank reserves. There is a variety of moves afoot in order to increase the use of other currencies in the global financial system, even though US officials see little risk to the greenback's dominance in the global financial system.

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There was an initiative that came out of India last month when it offered its own currency to countries that are experiencing a shortage of dollars as an alternative to trading with them.

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As part of the Washington meetings, it is possible that policymakers will also receive an update on central banks' digital currencies as well as a perspective on the woes facing the cryptocurrency industry.

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Japan’s Bernanke 

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Kazuo Ueda, also known as the Japanese Ben Bernanke for his rise from academia to becoming one of the world's biggest central bankers, is expected to make an appearance on the global stage in Washington days after assuming the helm of the Bank of Japan. While most people expect that he will scale back the BOJ's still ultra-stimulative stance, the international investment and policymaking communities will be keen to hear any hints about how he intends to shape monetary policy in the world's third-largest economy.

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Russia-Ukraine

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Despite now being in its second year, the Russian war in Ukraine continues to have a substantial impact on commodities and energy markets. Moreover, the absence of high-level representatives from the Russian Federation will also be of note. Just weeks after the invasion of Ukraine by President Vladimir Putin, representatives from the Group of Seven Nations staged a walkout from a G-20 meeting in Washington that took place one year ago.