This week’s IMF and World Bank Spring Meetings kicked off celebrations marking 80 years since they were created at the Bretton Woods Conference. But instead of moving with the times, the lack of outcomes this week demonstrate just how outdated and ill-equipped these institutions are, making them unable to address the complex realities of the 21st century.
Instead of addressing their structural problems, they have reaffirmed the same failed recipes.

Iolanda Fresnillo, Policy and Advocacy Manager at the European Network on Debt and Development (Eurodad) who attended this week’s Meetings, said: “In a polycrisis not of their own making, the majority of countries in the global south cannot afford the public spending they need to fulfil their Sustainable Development Goals and tackle climate challenges. As a consequence of decreasing development finance flows and increasing debt payments, many countries are cutting back public investment to promote development.

“Despite the self-congratulatory tone this week in relation to the achievements of the G20’s Common Framework for Debt Restructurings and the Global Sovereign Debt Roundtable, there is a general recognition that the international financial architecture is failing all of these countries. The response from the IMF and World Bank continues to play down the severity of the debt problems, risking a worsening of the situation in the coming years.”

The Global Sovereign Debt Monitor 2024, published at the beginning of the week by Erlassjahr.de, revealed that this year countries in the global south will have to make more debt service payments to their external creditors than ever before - 10 per cent more than the previous record in 2022. For 45 countries, more than 15 per cent of government revenue is being spent on servicing their debt. As the African Forum and Network on Debt and Development (AFRODAD) states “the debt crisis is a development crisis”, and unless the global financial architecture is fixed, the impacts are going to hit vulnerable people the hardest, particularly women and girls.

The situation is particularly dramatic for countries that are most vulnerable to climate change. In a communiqué this week, the Vulnerable Climate Forum - or V20 pointed to the US$525 billion that they have lost in the last 20 years due to climate change, while at the same time their debt bills are expected to escalate from $78.6 billion in 2019 to $122.1 billion.

Fresnillo said: “While both the IMF and the World Bank say they are trying to step up their act to address debt distress and climate change, they are getting it wrong. What is needed is a redesign of the policy framework that the international financial institutions and other policy makers use to assess how much debt countries can carry - the so-called “debt sustainability framework” - and this needs to relate to these countries’ human rights obligations and their need to deal with climate change and environmental degradation.

“Ultimately, the world needs a process to put in place a new multilateral legal framework to deal with sovereign debt, under UN auspices, in the same way that UN member states have started negotiating a new framework to govern tax cooperation and clamp down on big corporates not paying their taxes.”

This week the World Bank’s focus was squarely on its ‘Evolution Roadmap’, the shift to implementation and improving efficiency by setting up impact indicators - also known as a ‘scorecard system’.

Fresnillo said: “What we expected from a World Bank evolution is a fundamental rethink of how the institution goes about achieving its mission and vision for the poorest countries in the world. Instead, the process has boiled down to indicators and a score-card, maintaining the same private-sector-focused failed policies. While monitoring systems have their value, they are not going to solve the structural issues. They distract from, rather than solve, the problems."

The Bank also focused on the critical replenishment of the International Development Association (IDA) – the arm that provides concessional and grant finance to low-income countries (LICs).

Fresnillo said: “While the Bank has celebrated a massive fundraising drive to collect a historically high sum in contributions to the IDA programme this year, serious questions remain about the policy framework used when providing the finance. The Bank’s use of IDA money to subsidise private sector projects financed by its private sector-finance arm, the International Financial Corporation, and its risk insurance arm, the Multilateral Investment Guarantee Agency, without sufficient evidence that this adds value for development outcomes, is one of the problems that does not seem to be addressed in the current replenishment round.”

World Bank data shows that one in three countries that are eligible for concessional finance under their IDA programme are poorer now than on the eve of the Covid-19 crisis. Similarly a report by US-based think-tank Center for Global Development (CGD) showed that in the over 60 years since its inception, only seven out of 81 countries were able to leave the programme and find finance from other sources.

Fresnillo added: “The IDA needs a development and human-rights centred policy framework that supports countries to break the cycle of dependency on these programmes and undertake ecologically sustainable and just economic transformation.”

Eight decades after their creation, the World Bank and IMF still maintain an unbalanced shareholder system. In its communique, the G24 group of middle-income and emerging economies, pointed out that the quota increase agreed by the IMF last year still does not address the underrepresentation of the global south in the IMF governance structure, which will “continue to undermine the organization's legitimacy and credibility”.

A further example of the IMF's disregard of underrepresented countries is its failure to end its policy of surcharges that penalise countries already struggling with decreased fiscal space and high debt servicing costs. CSOs across the world continue to call for an end to this practice.

ENDS

Media contact: Julia Ravenscroft, Communications Manager, Eurodad: [email protected]/ +44 7958 184 695.

NOTES TO EDITORS

Here you can read an Article on the IDA 21 replenishment this year by Eurodad’s Development Finance expert Maria Jose Romero.