Middle East war, high debt levels to dominate IMF-World Bank meetings in Bangkok

The meetings come as several major risks reinforce one another. The US-Israeli-led war with Iran has disrupted energy markets and caused inflation and hardship. Rising interest rates make borrowing more expensive, while heavy public debt leaves governments with less room to respond. Together, these pressures threaten already-sluggish global growth.

The energy shock is especially important because Iran's closure of the Strait of Hormuz shut off some 20% of the world's oil. Diesel, crude oil, and fertilizer prices have risen. Higher energy and fertilizer costs increase transport and farming expenses, feeding inflation and threatening food security. Debt payments then become harder to afford.

Officials will therefore focus on containing inflation, protecting vulnerable countries, and preventing a wider economic crisis. IMF forecasts still point to 3% global growth in 2026, but the Bank is watching developments closely. War, El Nino, energy costs, fertilizer prices, and debt could worsen the outlook together.

The International Monetary Fund, or IMF, is a global institution that supports countries facing financial or economic instability, often through policy advice and lending. The World Bank is a development institution that finances projects and programs intended to reduce poverty and strengthen economies. Their work matters because national economic problems can spread across borders.

At annual meetings, finance ministers, central bankers, officials, and institution leaders assess the global outlook. They discuss inflation, debt, growth, energy shocks, and support for countries under pressure. They can also negotiate or signal lending programs, debt measures, and policy priorities. The article describes these meetings as a major forum for international economic coordination.

This year's meetings are being held in Thailand, outside Washington for the first time in three years. War with Iran, Russia's invasion of Ukraine, high interest rates, and energy shortages will shape discussions. US Treasury Secretary Scott Bessent will not attend, sending two senior officials instead.

The article describes an unusually large combination of pressures. The Strait of Hormuz is a crucial oil route: when Iran closed it, some 20% of the world's oil was shut off. That scale means even a temporary disruption can quickly affect fuel prices, transport costs, fertilizer production, inflation, and household budgets around the world.

The debt burden is also enormous. The IMF says public debt is already at its highest level since World War Two and will exceed 100% of global GDP before 2030. More than 1 billion barrels of oil have been released from mainly onshore commercial inventories since the war began, but accessible stocks are running low.

These figures show why markets remain fragile. Emergency reserves can soften shortages, but dwindling accessible oil leaves prices vulnerable to further disruptions. High debt limits governments' ability to subsidize energy or support households, especially when interest rates are also rising.

Energy is embedded in nearly every economy. When war disrupts oil supplies, fuel becomes more expensive. Diesel raises transport and production costs, while fertilizer price increases make farming more expensive. Those costs can pass through to food prices, making basic necessities harder to afford and increasing hardship, especially for poorer households.

The IMF says sharp food and energy price spikes increasingly trigger crises. They push inflation expectations higher for longer, worsen poverty, and threaten economic stability. The article also links soaring diesel and fertilizer prices with a looming super El Nino, creating several simultaneous pressures on food supplies and household budgets.

Growth suffers because families have less money to spend, businesses face higher costs, and governments must devote more resources to relief. Public debt and interest payments further restrict support. The World Bank has not yet lowered its forecasts, but it is closely monitoring the combined effects of energy, fertilizer, weather, and debt.

Governments are trying to increase supply and calm energy markets. Group of Seven countries agreed to release 100 million barrels of diesel and crude from emergency reserves. President Donald Trump also announced a deal with Russia to provide more diesel, alongside a temporary waiver of US sanctions intended to reduce Moscow's war revenues.

These measures work by putting additional fuel into global markets. More available oil can limit shortages and reduce upward pressure on prices. However, the article says more than 1 billion barrels have already been released, mainly from commercial inventories, since the war began. Industry executives warn that accessible storage is running low.

That makes the market more fragile. Reserve releases cannot continue indefinitely, and they may not offset a major supply disruption. Diesel and fertilizer prices could still rise, while super El Nino may damage food security. High debt and interest costs also limit governments' ability to cushion households and businesses.

Developing and low-income countries face a tighter financial squeeze than many rich economies. Their public debts are high, and they often depend on international investors. When US interest rates rise, investors may move money toward US assets seeking better returns. That can reduce funding available to emerging markets and make their currencies and borrowing conditions more vulnerable.

Debt must then be renegotiated or refinanced at higher interest rates. The article says interest payments already exceed 10% of revenue in developing countries on average. Governments have less money for health, education, infrastructure, food support, and investment. Capital outflows add pressure, while El Nino and weak AI investment create further disadvantages.

The result can be painful adjustment and slower growth. G20 diplomats report little appetite for suspending debt payments again, unlike during the early Covid crisis. New IMF loan programs requiring fewer but deeper reforms also worry poorer countries because they may bring harsh austerity.

Public debt is the accumulated money a government has borrowed and still owes. Debt-to-GDP compares that debt with the value of everything an economy produces in a year. It helps show the burden relative to the country's economic capacity. Interest payments are the regular costs of servicing borrowed money, separate from repaying the original debt.

Suppose a government must refinance debt when interest rates are higher. New loans cost more, so a larger share of revenue goes to interest. Developing countries already spend more than 10% of revenue on interest payments on average, according to the article. That leaves less money for services, investment, and emergency support.

The problem can compound during crises. Energy and food price shocks increase spending needs just as borrowing becomes more expensive. The IMF says global public debt is at its highest level since World War Two and will exceed 100% of GDP before 2030. Higher rates therefore make debt harder to stabilize.