Finance leaders worldwide are gathering in Washington this week amid growing concerns over the economic fallout from the Middle East war, which marks the third significant disruption to the global economy following the COVID-19 pandemic and Russia’s 2022 invasion of Ukraine. Senior officials from the International Monetary Fund (IMF) and World Bank have recently announced plans to revise downward their global growth projections while increasing inflation estimates, highlighting the severe impact on emerging markets and developing nations due to rising energy costs and supply chain interruptions.
Prior to the outbreak of the conflict on February 28, both institutions had anticipated upward revisions to growth forecasts, reflecting the global economy’s resilience despite the imposition of major U.S. tariffs under President Donald Trump last year. However, the war has introduced a series of economic shocks that threaten to stall recovery efforts and complicate inflation control.
The World Bank’s current baseline projects growth in emerging and developing economies at 3.65% for 2026, down from 4% estimated in October. This figure could decline further to 2.6% if the conflict persists. Inflation in these regions is now expected to reach 4.9% in 2026, a significant increase from the previous 3%, with a worst-case scenario pushing it as high as 6.7%. Meanwhile, the IMF has warned that approximately 45 million more people could face severe food insecurity if the war continues to disrupt critical fertilizer supplies.
Both institutions are urgently mobilizing resources to assist vulnerable countries, even as public debt levels hit record highs and fiscal space tightens. The IMF anticipates emergency funding demands ranging from $20 billion to $50 billion for low-income and energy-importing nations. The World Bank has indicated it can deploy around $25 billion through crisis response mechanisms in the short term, potentially scaling up to $70 billion within six months if necessary.
Economists caution governments to adopt targeted and temporary measures to alleviate the burden of rising prices on citizens, warning that broader interventions could exacerbate inflationary pressures. World Bank President Ajay Banga emphasized the importance of leadership and noted that previous fiscal and monetary strategies had helped economies navigate past crises, though he acknowledged the current situation as a systemic shock.
Countries now face the complex challenge of balancing inflation control with sustaining growth and addressing the long-term need to create jobs for the estimated 1.2 billion people entering the workforce in developing countries by 2035. The geopolitical environment complicates this task further, with heightened tensions between the United States and China and the Group of 20 (G20) struggling to coordinate a unified response. The U.S., holding the G20 presidency, has excluded South Africa from participation, undermining consensus-building efforts within the group that also includes Russia and China.
Josh Lipsky, chair of international economics at the Atlantic Council, noted that statements from the IMF, World Bank, and other multilateral lenders about their readiness to support affected countries aim to reassure markets and private creditors. He stressed that this crisis differs from the COVID-19 pandemic and is manageable with coordinated support from international financial institutions.
Mary Svenstrup, formerly a senior U.S. Treasury official and now with the Center for Global Development, pointed out that many emerging and developing economies entered this crisis with weaker financial buffers, higher debt vulnerabilities, and diminished reserves compared to previous years. She urged the IMF to reconsider its approach to supporting vulnerable nations, emphasizing the need to avoid forcing them to sacrifice growth and development while rebuilding fiscal buffers.
Svenstrup advocated for more ambitious reforms tied to new financial assistance, suggesting that support from international financial institutions should be affordable and linked to reform programs and potentially broader debt relief. Martin Muehleisen, a former IMF strategy chief now at the Atlantic Council, echoed this view, recommending accelerated debt restructuring and linking new lending to credible debt reduction plans to break the debt cycle.
Eric Pelofsky, vice president at the Rockefeller Foundation, highlighted that low-income and lower-middle-income countries paid twice as much to service debt in 2025 compared to pre-pandemic levels, severely limiting resources for essential social services like education and healthcare. He noted that half of these countries are now in or near debt distress, a sharp increase from a quarter just a few years ago. Pelofsky warned that the new conflict threatens to undo any recovery achieved since the pandemic and Ukraine war, trapping these nations in a prolonged cycle of debt, slow growth, and underinvestment.
