Finance ministers, central bank governors and senior officials from multilateral development institutions meet in Washington this week with the fallout from the Middle East war casting a long shadow over policy deliberations. The conflict - which broke out on February 28 - has already been treated by key institutions as a third systemic shock to the global economy following the COVID-19 pandemic and Russia’s full-scale invasion of Ukraine in 2022.
Senior leaders at the International Monetary Fund and the World Bank have moved to downgrade their projections for global expansion and to raise their inflation forecasts in light of the conflict. Their assessments warn that emerging markets and developing countries are particularly vulnerable to the war’s effects, through higher energy prices and disruptions to supply chains.
Before the Iran war began, both institutions had been preparing to lift growth forecasts, citing global economic resilience even after the imposition of major tariffs by U.S. President Donald Trump beginning last year. The onset of hostilities, however, has introduced a new set of shocks that threaten to slow recovery and complicate efforts to bring inflation under control.
The World Bank’s baseline projection for growth in emerging markets and developing economies is now 3.65% in 2026, down from 4% as estimated in October. That baseline could slide further to 2.6% in a scenario where the war persists longer than currently expected. On the inflation front, the bank now anticipates consumer prices in those countries will rise 4.9% in 2026, compared with its previous estimate of 3%. In a worse-case outcome, inflation could surge to 6.7%.
The IMF has highlighted additional humanitarian risks linked to the conflict, warning that roughly 45 million more people could face acute food insecurity if the war continues and disrupts critical shipments such as fertilizers.
Both institutions are mobilizing resources to support vulnerable countries. The IMF has said it expects near-term demand for emergency assistance to low-income and energy-importing nations to fall in the range of $20 billion to $50 billion. The World Bank has signaled it can mobilize about $25 billion through crisis response instruments in the near term, with the capacity to scale up to $70 billion within six months if conditions warrant.
These commitments are arriving against a backdrop of elevated public debt and constrained fiscal space in many countries, limiting governments’ ability to respond. Economists and multilateral officials are urging that domestic policy relief for citizens take the form of targeted and temporary measures; broader, untargeted interventions could risk reigniting inflationary pressures.
World Bank President Ajay Banga underscored the importance of effective leadership and sound macroeconomic management, noting that past crises had been weathered through coordinated fiscal and monetary discipline. At the same time, he warned that the current conflict represents a systemic shock that requires decisive, calibrated action.
Policy choices for many countries now involve a difficult trade-off: rein in inflation without choking off growth, while also addressing the longer-term priority of job creation for rapidly expanding workforces. The World Bank and IMF note that close to 1.2 billion people in developing countries will reach working age by 2035, a demographic imperative that shapes fiscal and investment priorities.
Efforts to mount a coordinated international response are complicated by strained geopolitical relations. Tensions between the United States and China, together with frictions involving other major powers, are undermining the consensus-building role of forums such as the Group of 20. The United States, which currently holds the rotating G20 presidency, has excluded South Africa from participation in this round, a move that observers say diminishes the group’s ability to deliver a united response. The G20 also includes Russia and China, amplifying the diplomatic complexity.
"You’re trying to operate on consensus when there’s no consensus in the world right now," said Josh Lipsky, chair of international economics at the Atlantic Council. He noted that public statements by multilateral lenders about readiness to support affected countries are intended to reassure markets and private creditors. "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."
Analysts and former officials warn that many emerging and developing economies entered this episode with weaker cushions than in past crises. Mary Svenstrup, a former senior U.S. Treasury official who now works at the Center for Global Development, said these countries face lower fiscal buffers, greater debt vulnerabilities and reduced foreign exchange reserves compared with a few years ago.
Svenstrup argued that the current crisis should prompt a re-evaluation of how the IMF supports vulnerable borrowers, noting that future funding will need to balance affordability with development objectives. She recommended that fresh financing be conditional on credible reform programs and that debt relief be considered where appropriate.
Martin Muehleisen, formerly the IMF's strategy chief and now with the Atlantic Council, expressed a similar view. He urged the IMF to collaborate with donor countries to speed up debt restructuring efforts so that borrowers can escape recurring debt cycles, and recommended tying new lending to a clear, credible roadmap for debt reduction.
Eric Pelofsky, vice president at the Rockefeller Foundation, highlighted the human and fiscal costs of elevated debt service. He noted that low-income and lower middle-income countries paid twice as much to service their debts in 2025 compared with the pre-COVID period, constraining spending on education, health and other essential programs. He added that roughly half of these countries were in or near debt distress, up from about a quarter a few years earlier.
Pelofsky warned that the new conflict threatens fragile recoveries established since the pandemic and the Ukraine war, keeping countries that have been striving to avoid default trapped in a cycle of low growth, rising debt burdens and limited investment capacity.
As global finance officials convene in Washington, the multilateral community faces a demanding agenda: calibrate emergency support without undermining macro stability, accelerate debt tools for the most exposed borrowers, and find ways to preserve development gains amid heightened geopolitical friction. All of these tasks must be managed while acknowledging the limits of fiscal space in many vulnerable countries and the risks posed by prolonged supply disruptions to energy and agricultural inputs.
The coming days will test whether international institutions and national policymakers can deliver targeted, temporary relief at sufficient scale and speed to prevent a prolonged downgrade in global growth and a deeper erosion of development prospects for the world’s poorest economies.