IMF and World Bank in Transition – Global Economic Outlook 2025

The 2025 International Monetary Fund (IMF) and World Bank Annual Meetings marked a notable shift in the global economic governance landscape. Unlike previous years, the gatherings lacked their usual prominence. This change reflects deeper divisions among major powers and the rise of regional development banks. The global economy faces mixed signals with modest growth, persistent inflation disparities, and evolving policy debates.

Global Economic Growth and Inflation Trends

The IMF’s World Economic Outlook (WEO) for 2025 projects global growth at 3.2%, slightly down from 3.3% in 2024. Inflation is expected to ease in advanced economies to 2.5% but remain elevated in emerging markets at 5.3%. Real interest rates stay above pre-pandemic levels in most advanced countries, signalling ongoing monetary tightening. These figures show uneven recovery and persistent economic challenges worldwide.

India’s Economic Performance and Projections

India’s growth outlook remains robust with a forecast of 6.5% for 2024-25 and 2025-26. Inflation is predicted to converge towards the 4% target as food price shocks subside. The current-account deficit is stabilising near 1.3% of GDP. India’s nominal GDP growth exceeds 10%, outpacing government bond yields. Services exports hit a record $325 billion in 2025. However, standard debt sustainability models often underplay India’s unique economic dynamics, including its public investment and export strength.

Institutional Challenges and Ideological Divides

The IMF and World Bank face criticism for their rigid, one-size-fits-all policy frameworks rooted in the Washington Consensus. Critics argue these models neglect political realities and distributional effects. The governance structure concentrates power in advanced economies, especially the US, which holds veto-like influence. This imbalance shapes institutional priorities and limits responsiveness to developing countries’ needs.

Emergence of Alternative Development Banks

Regional institutions such as the Asian Development Bank, African Development Bank, Inter-American Development Bank, and New Development Bank are gaining influence. Their rise reflects dissatisfaction with traditional Bretton Woods institutions. These banks offer more regionally tailored approaches and challenge the dominance of Western-led financial governance.

Calls for Reform and Greater Transparency

Experts advocate for reforms to improve the IMF and World Bank’s relevance. Suggestions include publishing transparent assumptions behind economic forecasts to enable external validation. Increasing granularity in reports would better capture sectoral and regional differences. Making data more accessible and actionable for policymakers could democratise knowledge and improve decision-making. Aligning macroeconomic forecasts with institutional capacity assessments is also recommended.

Technical Shortcomings and Lessons from Past Crises

The IMF’s forecasting errors, especially before the 2008 crisis, exposed groupthink and overreliance on orthodox economics. The failure to integrate financial risks undermined early warnings. Recent evaluations call for more nuanced surveillance and policy prescriptions with clear operational details, particularly on job creation and investment strategies.

Significance of Multilateral Economic Reports

Despite challenges, the WEO, World Development Report, and Global Economic Prospects remain vital. They compel countries to assess their position in the global economy and link growth prospects to policy and institutional frameworks. The reports’ evolution will be critical to capturing the dynamism of ’s economic landscape and encouraging inclusive development.

Questions for UPSC:

1. Point out the reasons behind the rise of regional development banks and critically analyse their impact on the global financial governance system.
2. Underline the challenges faced by the International Monetary Fund’s governance structure and estimate how it affects policy decisions for developing countries.
3. What are the key factors influencing inflation and growth disparities between advanced and emerging economies? With suitable examples, explain how monetary policy responses differ.
4. Critically analyse the role of transparency and data granularity in international economic forecasting and how these can improve policy formulation in diverse economies.

Answer Hints:

1. Point out the reasons behind the rise of regional development banks and critically analyse their impact on the global financial governance system.

1. Fragmentation and competing visions among traditional powers (US, EU) weaken Bretton Woods institutions’ influence.
2. Regional banks (ADB, AfDB, IDB, NDB) offer tailored, region-specific development solutions addressing local needs better.
3. They provide alternatives to IMF/World Bank conditionalities, often seen as rigid and one-size-fits-all.
4. Rise reflects dissatisfaction with Western-dominated governance and power imbalances in global finance.
5. Regional banks increase multipolarity and diversify sources of development finance and technical expertise.
6. However, they may lack the scale, global coordination capacity, and policy influence of Bretton Woods institutions.

2. Underline the challenges faced by the International Monetary Fund’s governance structure and estimate how it affects policy decisions for developing countries.

1. Voting shares heavily skewed toward advanced economies; US holds veto power with 16% votes, requiring 85% majority for major decisions.
2. Developing countries remain underrepresented, limiting their influence on IMF priorities and policy frameworks.
3. Power imbalance shapes IMF’s ideological bias favoring Washington Consensus and austerity policies.
4. Limits responsiveness and flexibility to diverse economic realities and needs of developing nations.
5. Results in one-size-fits-all prescriptions that may neglect country-specific public investment, social, and political contexts.
6. Governance structure fuels criticism of IMF’s legitimacy and relevance in a multipolar world economy.

3. What are the key factors influencing inflation and growth disparities between advanced and emerging economies? With suitable examples, explain how monetary policy responses differ.

1. Advanced economies – inflation moderates (~2.5%), growth slows (3.3% to 3.2%), real interest rates remain high post-pandemic.
2. Emerging markets – higher inflation (~5.3%), uneven disinflation due to food shocks, supply constraints, and external vulnerabilities.
3. India example – robust growth (~6.5%), inflation converging to 4%, aided by public investment and services exports.
4. Advanced economies adopt tighter monetary policy (high real rates) to combat inflation, risking growth slowdown.
5. Emerging markets face trade-offs between inflation control and growth support; monetary tightening may be limited by external debt and capital flow risks.
6. Policy responses reflect differing structural factors, economic resilience, and financial market conditions.

4. Critically analyse the role of transparency and data granularity in international economic forecasting and how these can improve policy formulation in diverse economies.

1. Transparency in assumptions and model sensitivities enhances credibility and allows external validation of forecasts.
2. Greater granularity (sectoral, regional, country-level data) captures heterogeneities within broad aggregates like emerging Asia.
3. Disaggregated data helps domestic policymakers tailor policies to specific sectors (manufacturing, services) and regional needs.
4. Accessible, interactive reports democratize understanding and support informed decision-making across diverse economies.
5. Aligning macroeconomic forecasts with institutional capacity assessments (e.g., standards scorecards) integrates policy and governance dimensions.
6. Improved transparency and granularity reduce risks of groupthink and overly orthodox prescriptions, encouraging nuanced, context-sensitive policies.