Global financial leaders are assembling in Washington this week as the Middle East conflict creates another major disruption to worldwide economic stability, marking the third substantial crisis following the COVID-19 pandemic and Russia’s 2022 invasion of Ukraine.
Leadership from the International Monetary Fund and World Bank announced last week they plan to reduce global growth projections while increasing inflation estimates due to the ongoing war. Officials warn that developing nations and emerging markets will bear the greatest burden from elevated energy costs and supply chain interruptions.
Prior to the Iran conflict beginning on February 28, both organizations anticipated raising their growth predictions based on the global economy’s strength despite significant tariffs implemented by U.S. President Donald Trump starting last year. However, the war has created multiple disruptions that will hinder progress toward economic recovery and inflation control.
Current World Bank projections show emerging markets and developing economies growing at 3.65% in 2026, reduced from the October estimate of 4%, with potential drops to 2.6% if the conflict extends. Inflation projections for these nations have increased to 4.9% in 2026 from the earlier 3% forecast, potentially reaching 6.7% under worst-case scenarios.
The IMF cautioned last week that approximately 45 million additional people may experience severe food shortages if the war continues and keeps disrupting fertilizer deliveries.
Both institutions are working rapidly to address this latest emergency and assist vulnerable nations while public debt reaches unprecedented levels and government budgets remain constrained.
The IMF anticipates requests for $20 billion to $50 billion in immediate emergency assistance for low-income and energy-dependent countries. The World Bank stated it could deploy approximately $25 billion through crisis response mechanisms immediately, expanding to $70 billion within six months as required.
Economic experts recommend governments implement only focused and temporary measures to alleviate higher prices for citizens, warning that broader interventions might increase inflation.
“Leadership matters, and we’ve come through crises in the past,” World Bank President Ajay Banga stated to Reuters, praising fiscal and monetary management that helped economies survive earlier challenges. “But this is a shock to the system.”
Nations must now carefully balance inflation management while monitoring growth and addressing the long-term goal of creating sufficient employment for the 1.2 billion people expected to reach working age in developing countries by 2035.
The IMF and World Bank also confront a dramatically different international environment with heightened tensions between the United States and China, the world’s two largest economies, while the Group of 20 major economies struggles to coordinate responses.
The United States currently leads the rotating G20 presidency, which includes Russia and China, but has excluded member South Africa from participation, hampering the group’s crisis coordination abilities.
“You’re trying to operate on consensus when there’s no consensus in the world right now on anything,” explained Josh Lipsky, chair of international economics at the Atlantic Council.
Lipsky noted that public commitments from the IMF, World Bank and other international lenders regarding their readiness to assist war-affected countries clearly target market reassurance.
“It’s a signal to private creditors. This is not a time to flee countries that are in problematic waters. They will have support from the multilateral development banks and the international financial institutions. This is not going to be COVID. This is something that we can handle.”
Mary Svenstrup, formerly with the U.S. Treasury and now at the Center for Global Development, emphasized that many emerging market and developing economies face this crisis in worse condition than previously, with reduced financial cushions, increased debt risks and lower reserves.
“We need to have this crisis be a catalyst for IMF stakeholders to really rethink how the Fund supports vulnerable countries with the recognition that we’re going to be seeing more global shocks,” she stated. “We can’t ask them to sacrifice growth and development for the sake of rebuilding buffers.”
Svenstrup suggested countries should pursue more comprehensive reforms when receiving new funding. “There probably does need to be more financial support from the (international financial institutions) but it needs to be affordable, and it needs to be in the context of reform programs and potentially broader debt relief,” she added.
Martin Muehleisen, former IMF strategy director now with the Atlantic Council, agreed, stating the IMF should collaborate with donor nations to expedite debt restructuring for borrowers and “get them off the debt cycle.” He recommended linking new lending to credible debt-reduction plans.
Eric Pelofsky, vice president at the Rockefeller Foundation, noted that low-income and lower middle-income countries paid double the amount for debt service in 2025 compared to pre-COVID levels, reducing funds available for education, healthcare and other essential social programs. Half now face debt distress or near-distress, up from one quarter just years ago.
“This new conflict threatens any recovery that occurred since the pandemic or the Ukraine war, and it takes countries that have basically been treading water, trying to stay away from default, and keeps them in a long term debt-growth-investment trap,” he concluded.
