2025 IMF Annual Meeting

Last week I was in Washington at the latest Annual Meeting of the International Monetary Fund (IMF) as well as the latest (and final under the South African Presidency) meeting of G20 Finance Ministers and Central Bank Governors. These get-togethers (whether at the IMF or the G20) bring Finance Ministers and central banks to the same table and are an important opportunity for dialogue on key economic and financial issues. The backdrop to this year’s meetings was a global economy fragmenting along geopolitical lines, a trend that has accelerated this year, with implications for economies big and small. As a highly open and very well-connected economy with a significant financial system, these global developments matter to Ireland.

The global economy and financial system 

Overall, the IMF’s message was of a resilient global economy but with underlying fragilities. Its latest projections for global growth have been revised upward relative to 6 months ago, but are lower than 12 months ago due to the intervening policy shifts. It will, though, take time to understand the full effects of the changing global trading framework. The US economy has started to show signs of a slowdown, although the (remarkable) investment in AI is masking some of the slowdown in other investments. Global imbalances (essentially the fact that some countries have persistent current account deficits, spending more on foreign goods and services than they earn – while others have surpluses) were a topic of discussion throughout the week (and will continue to be an area of focus for the Fund and the G20).

From a financial stability perspective, the IMF highlighted the risks from stretched asset valuations, growing pressure in sovereign bond markets, and the increasing role of nonbank financial institutions (NBFIs) as market makers, liquidity providers and intermediaries in private credit, real estate, and crypto markets. I was struck by the potential for the vulnerabilities in the system to interact, in particular the combination of an AI boom (now with a growing role for debt financing), and the growth in private credit (with opaque lending standards), crypto markets and (increasing) sovereign debt.  We will need to keep a very close eye on these developments which, on the face of it, look uncomfortably familiar.

Key themes

Outside of the main meetings, three themes dominated my conversations: technology, NBFIs and institutional credibility.

Not surprisingly, technology developments were a big theme, not least on payments.  Discussions with peers, with industry and with academia covered the rapidly evolving landscape (stablecoins, tokenised deposits, central bank digital currencies) and the implications for public policy outcomes, as well as the cross-border elements and the regulatory approaches by different jurisdictions.  This is an area which the Central Bank is focused on, reflecting the breadth of our mandate and the need to consider the issues from a consumer, investor, financial stability and macroeconomic perspective.

Inevitably AI was also a big topic, with a focus on its potential to boost productivity and growth, but countries also need to be prepared and to have the right policies in place to protect consumers and prevent against divergence both within and across countries as well as managing the risks that increasing debt financing may pose.

Invariably, there was continued focus on different dimensions of NBFIs where vulnerabilities are seen to be building up. The opacity of private credit markets was an issue of focus (not surprisingly in view of the collapse of First Brands at the start of the week) as was the growth of NBFIs investing in sovereign and corporate debt markets. There were calls across the meetings for implementing the agreed international standards to develop resilience in the sector, an area the Central Bank has been focused on for some time.

Finally, institutional credibility and multilateralism. There was a greater focus than in previous years on the important role that institutions play in providing economic frameworks that support stability. Central bank independence was a topic of discussion, as was the IMF’s role to promote global and macroeconomic stability and provide independent policy advice for every single member. I have long appreciated the IMF’s commitment to being a trusted advisor and providing candid assessments across the globe

Some reflections

Last week’s meetings reinforced for me some clear priorities for Irish and European economic policy, which I reflected in my speech at the Atlantic Council.

First and foremost, policy needs to focus on the fundamentals, managing the short term while planning for the medium term, ensuring our frameworks are fit-for-purpose and learning the lessons of the past while preparing for the future. Successful economies need stable and sustainable macroeconomic frameworks and sound fiscal and monetary policies, along with stable and well-regulated financial systems and well-functioning markets.

For Ireland, against a backdrop of strong economic and population growth, continuing to attract investment will require a particular focus on closing infrastructure gaps in water, energy, transport, and housing as the Government set out in its recent Budget.  As part of the EU, Ireland is also part of the world’s largest single market and there is untapped potential in it integrating further in that market. 

For Europe, it remains essential that we respond to the challenges that Mario Draghi and Enrico Letta highlighted in their reports last year.  As the world’s largest trade bloc – accounting for around 15.8 per cent of world trade – deepening the Single Market offers a hedge against broader global trade fragmentation, helping to reduce an over-reliance on external dependencies, fostering innovation, and promoting stable growth.  Perhaps most of all delivering the Draghi/Letta agenda is about realising the potential of the European economy for its citizens.

Finally, last week’s meetings were set against a (continuing) global macroeconomic environment of uncertainty, geopolitical tensions and regional conflicts. They reaffirmed for me the value of engaging with global institutions to address shared challenges. Operating in a small open economy means we value relationships that support our commitment to multilateralism and international cooperation, collaboration and understanding. In that context I was particularly pleased to sign an MOU with the South African Reserve Bank; with a view to share knowledge, experiences and methodologies as we both develop our sustainable finance frameworks and approach to emerging technologies and the evolving payments landscape.

More change in the global environment is guaranteed, and the stage is now set for building new relationships, adopting new frameworks and creating new paradigms for the world that our children and grandchildren will inhabit.