The Banking Executive Issue - October 2025 Issue

2025 IMF–World Bank Meetings GLOBAL GROWTH & INFLATION: “BETTER THAN FEARED, WORSE THAN NEEDED” In her Global Policy Agenda press briefing, Georgieva captured the mood with a memorable line: the world is “better than feared but worse than needed.” Global growth has proven resilient: the October WEO projects 3.3% in 2024, dipping slightly to 3.2% in 2025 and 3.1% in 2026. Advanced economies hover around 1.5% growth, while emerg- ing and developing economies are expected to grow just above 4%. The tariff shock earlier in the year ini- tially pulled forecasts down; April’s WEO cut the 2025 projection to 2.8%. As negotiations moderated tar- iff rates and firms front-loaded im- ports and reorganized supply chains, the outlook improved, prompting the October upgrade. Inflation is easing, though unevenly. Most regions have seen headline rates fall back towards target ranges, but services inflation and wage dy- namics remain sticky in a number of advanced economies. For many MENA countries, food and energy prices have cooled, allowing central banks to maintain tight but less bru- tally restrictive stances. The IMF’s Middle East and Central Asia Depart- ment now expects growth in the MENA region plus Pakistan to reach 3.2% in 2025 and 3.7% in 2026, with inflation projected to moderate as earlier shocks fade. Yet the Fund’s message was clear: this is not a return to the pre-2008 environment of abundant growth and benign inflation. The medium- term outlook is weighed down by weak productivity, demographic pressures in advanced economies and the scarring effects of repeated shocks. Structural reforms—labor market flexibility, competition, gov- ernance, and climate and digital policies—are now central to macro stability, not add-ons. SOVEREIGN DEBT & RESTRUCTURING: A SLOW-BURN CRISIS If growth was the “better than feared” part of the story, debt was the “worse than needed.” The Fiscal Monitor painted a stark picture: global public debt is projected to rise above 100% of GDP by 2029, its highest level since the aftermath of World War II. There is even a small but non-trivial probability that debt could reach 120% of GDP by 2029 if downside risks materialize. Advanced economies account for much of the increase, but the burden is most dangerous for emerging and low-income countries with weak market access and limited fiscal space. The IMF warned of “wide- spread and tilted” risks, with global markets still appearing relatively calm even as vulnerabilities mount. For many Arab countries, including Egypt, Tunisia, Jordan and a number of low-income and conflict-affected states, rising global yields and ele- vated debt levels mean less room for counter-cyclical spending and more pressure to mobilize domestic rev- enue and concessional financing. Georgieva used several platforms— including meetings of the Global Sovereign Debt Roundtable and press briefings—to press G20 mem- bers to prioritize debt. She called for faster, more predictable restructuring processes, better coordination among traditional and new creditors, and a more systematic use of IMF “good offices” to unblock negotia- tions. The message to markets and policy- makers was blunt: absent decisive action to rebuild fiscal buffers and improve spending efficiency, debt problems will morph from country- specific to systemic. For banks and investors, sovereign risk is once again a central driver of portfolio strategy. FINANCIAL STABILITY & BANKING SECTOR RISKS The Global Financial Stability Report (GFSR) built on that warning. While near-term systemic risks are assessed as contained, the report underscores three forward-looking vulnerabilities: stretched asset valuations in key mar- kets, growing strains in sovereign bond markets, and the rising sys- temic footprint of nonbank financial institutions (NBFIs), especially in pri- vate credit, real estate, and parts of the crypto ecosystem. Tighter links between NBFIs and banks—through funding, derivatives and shared asset exposures—mean that shocks can propagate quickly. The GFSR highlights the “sovereign– bank nexus” as a particular concern in highly indebted countries, where banks hold large quantities of domes- tic sovereign debt and may face mark-to-market losses if yields spike. For regulators and bank boards, the take-home from Washington was clear: this is a time to strengthen cap- ital and liquidity buffers, enhance stress testing that explicitly incorpo- rates sovereign and nonbank chan- nels, and intensify cross-border supervisory cooperation. CLIMATE FINANCE & THE GREEN TRANSITION Climate ran as a continuous thread through both IMF and World Bank discussions. Banga’s plenary speech framed much of the World Bank Group’s evolving agenda: develop- ment must be “smart,” meaning re- silient to climate shocks and rooted in strong institutions. He noted that nearly half of the Bank’s recent fi- nancing qualifies as having climate co-benefits, with a growing share fo- cused on resilience—roads built to withstand flooding, schools and clin- ics designed for extreme heat, and agricultural support that improves the BANKING EXECUTIVE 44 ISSUE 202 OCTOBER 2025 2. MAIN THEMES AND GLOBAL CONTEXT