World Bank-IMF Spring Meetings Send Signal to South Asia: Fix the Fundamentals
The 2025 Spring Meetings of the International Monetary Fund (IMF) and World Bank concluded recently in Washington, D.C., against a backdrop of rising protectionism and declining development finance. Although in the recent past, these meetings had become an arena for advancing the reform agenda on global development policy, this year’s official theme, “Jobs: The Path to Prosperity,” reflected the absence of any direct mention of “climate” from the official agenda. This omission appeared intentional, and came in the context of the first World Bank-IMF meeting since the new U.S. administration took office under President Donald Trump.
Unsurprisingly, global trade tensions dominated the discourse at the meetings. At the IMF’s curtain-raiser, Managing Director Kristalina Georgieva offered a grim forecast, warning of economic headwinds driven by uncertainty over U.S. tariff policy. Many finance ministers used the meetings as an opportunity to seek bilateral arrangements to cushion the blow of recently announced, and then paused, “reciprocal” tariffs. Among them were also the delegations from South Asian economies, which could be hit with steep tariffs – Sri Lanka (44 percent), Bangladesh (37 percent), and Pakistan (29 percent).
These South Asian economies face multiple challenges – diversifying their export markets, mobilizing financial resources to tackle increasing climate vulnerability, and addressing crippling levels of debt. The World Bank’s recently released South Asia Development Update flagged deteriorating growth prospects and noted that these economies were left with limited fiscal buffers due to multiple shocks over the past decade. It recommended accelerating structural reforms, job creation, and trade liberalization.
The message from the meetings and these reports is clear – developing economies must fix their fiscal and monetary policies and provide enabling conditions for domestic mobilization of finance. Interestingly, Sri Lanka, Bangladesh, and Pakistan all are already under active IMF programs, implementing structural reforms, and experimenting with new forms of climate finance. How have they fared amid all the uncertainty and how do they maintain momentum on any progress achieved?
South Asia’s Climate-Debt Conundrum
The engagements of these three South Asian country delegations at the Spring Meetings offer insights and valuable lessons for how low-income economies are navigating the intersection of climate vulnerability and crippling levels of debt.
Three themes emerged from their approaches. First, all three countries have made efforts to mainstream climate into national policies to attract investments. Second, they are pursuing structural reforms with the support of the IMF to strengthen their fiscal and monetary policy framework and to reduce debt vulnerabilities. And lastly, they are collaborating regionally beyond U.N. channels, such as via the V20 and Climate Vulnerable Forum (CVF), to develop Climate Prosperity Plans and demand better climate finance.
Sri Lanka, since defaulting in 2022, has made notable progress under its IMF program. Inflation has fallen into negative territory, and GDP growth has surpassed expectations. At the Spring Meetings, Sri Lankan Secretary to the Treasury and Finance Ministry Mahinda Siriwardana reflected on the progress on fiscal consolidation, but also highlighted key objectives to improve social protections and ensure long term stability, with an overarching goal of regaining public trust.
Yet the road ahead remains steep. External debt is still high, and implementing the 2022 Climate Prosperity Plan – prepared with V20 and CVF support – will require an estimated $7 billion annually until 2050, largely from international sources. Innovative tools like debt-for-climate swaps and credit guarantees have been proposed to help meet this goal, but operationalization remains limited.
As in the case of Sri Lanka, Pakistan has shown signs of stabilization, with inflation easing and Fitch Ratings upgrading its outlook from CCC+ to B-. However, entrenched structural issues persist, including a narrow tax base, an energy sector in crisis, and limited fiscal space. The country’s external and domestic debt now exceeds 75 trillion Pakistani rupees (around $270 billion).
Climate finance needs are daunting. The World Bank estimates that $350 billion is required for climate-resilient and low-carbon development by 2030. At the Spring Meetings, Pakistan sought IMF Board approval for a 28-month Resilience and Sustainability Facility (RSF) arrangement, granting access to $1.3 billion to support both macroeconomic reforms and climate investments – particularly in disaster resilience, water and energy efficiency, and green infrastructure.
Pakistan has taken several steps to attract climate finance. It announced a forthcoming Climate Prosperity Plan at last year’s Annual Fall Meetings and launched a comprehensive National Climate Finance Strategy at COP29 in Baku. A draft climate finance taxonomy, developed with World Bank support, aims to channel private investment. Additionally, the IDA recently approved a $300 million concessional loan for air quality improvement under the Punjab Clean Air Program. Finance Minister Muhammad Aurangzeb had several public engagements during the meetings. He stated that the economy was on the right track to stability and will stay on course. These actions highlight Pakistan’s delicate balancing act between economic stabilization and climate ambition.
And for neighboring Bangladesh, despite political uncertainty and high inflation, the country has maintained a degree of economic resilience. Its heavy reliance on exports, however, makes it vulnerable to global trade shocks. Thus, structural reforms and economic diversification remain top policy priorities.
Bangladesh has been more proactive than its peers in integrating climate concerns into policy. It was the first Asian country to secure RSF support – $1.4 billion in 2023 – for macroeconomic stability, green growth, and protecting the vulnerable. The country also has a comprehensive climate strategy, including a dedicated trust fund and a national climate investment platform developed with partners like the World Bank and Asian Development Bank.
Still, the scale of need is vast. The World Bank estimates that Bangladesh will require $304 billion in climate finance by 2030. Ongoing IMF programs, reviewed just before the Spring Meetings, aim to enhance fiscal resilience and investment planning while aligning development priorities with climate goals.
Looking Ahead: Seizing the Reform Window
The Spring Meetings underscored the need for integrated approaches to climate and debt challenges. Even though climate was not overtly part of the discussion, it was framed in the context of access to energy and job creations. Furthermore, civil society groups used the Civil Society Policy Forum to spotlight debt and climate justice. The focus on South Asia was limited but highlighted pressing issues across the region including disaster preparedness and financing for water security and impacts of hydropower financing.
With development aid flows declining, there was renewed emphasis on domestic resource mobilization and fiscal reform. This switch of focus from institutional reform of these multilateral institutions to domestic macroeconomic reform is concerning and at odds with the principles of climate equity and justice. However, these countries need to figure out innovative mechanisms and approaches to raise climate finance domestically, without exacerbating their debt situation.
For these three South Asian countries and similarly placed low-income, vulnerable economies, the climate-debt dilemma calls for simultaneous progress on multiple fronts including resilience building through climate-smart investments, inclusive growth that enhances fiscal stability, technological transfer and cooperation with advanced countries, including the U.S., EU, U.K. and China. As noted earlier, the region is increasingly seen as a frontier market for climate finance, with growing awareness of the need to embed climate resilience in development plans. Pakistan and Bangladesh’s climate finance platforms are notable examples. However, a recurring challenge remains: identifying bankable, investable projects that meet both development and climate goals.
Despite the relative decline in momentum on discussion on reform of the international financial architecture, not all has been lost. Low income countries have coalesced their demands in the discussions on the 4th U.N. Conference on Financing for Development (FFD4), scheduled for June this year, in Seville, Spain. The first draft outcome document reflects some of the global South’s concerns, but more assertive negotiation is needed to secure equitable reform of the international financial architecture, including advancing a co-benefits approach to climate and development and striking a balance between domestic mobilization and international financial support for sustainable development.
Addressing this climate-debt nexus is not just about unlocking money or redressing historical injustices – it’s about creating a sustainable, equitable future for South Asia’s 2 billion citizens. That imperative should drive both domestic agendas and global negotiations in the months ahead.
