What happens if the US pulls support from IMF, World Bank?

Is the US planning to leave the International Monetary Fund (IMF) and the World Bank?

Speculation about Washington’s potential withdrawal from global financial institutions has grown, especially after US Treasury Secretary Scott Bessent’s absence from recent G20 meetings raised concerns.

This follows previous moves by Trump, who signed executive orders to pull the US out of the Paris Climate Agreement and the **World Health Organisation (WHO).**

Notably, Project 2025, a 900-page policy framework for Trump’s second term, calls for the US to withdraw from both the International Monetary Fund and the World Bank.

ALSO READ | US withdraws from WHO: What kind of impact may we be looking at?

The document describes these institutions as “expensive middlemen” that “intercept” US funds before they reach global projects. If Trump follows this strategy, an American departure could be on the horizon.

More from Explainers

Is your house heating up and making you miserable? Paint it white How ChatGPT is becoming everyone’s BFF and why that’s dangerous

On February 4, Trump ordered a comprehensive 180-day review of all international organisations that the US is part of and funds, along with “all conventions and treaties to which the United States is a party.”

Leaving the IMF and World Bank would mean losing a major source of global influence and economic power for the US. The fact that the headquarters of both institutions are located near the US State Department, Treasury, and Congress is no coincidence.

So what exactly are the IMF and the World Bank, and what would happen if the US scales back its involvement?

What do the IMF and World Bank do?

The US and its allies established the International Monetary Fund and the World Bank in the aftermath of World War II to promote global economic stability and prevent future conflicts.

The IMF serves as a lender of last resort for nations in financial distress, assisting countries such as Greece during its debt crisis, Argentina amid repeated defaults, and the United Kingdom following its 1976 economic downturn.

Impact Shorts

More Shorts

Ghaziabad woman dead, pilgrims attacked in bus… How Nepal’s Gen-Z protests turned into a living hell for Indian tourists

Were bodyguards involved in Charlie Kirk’s shooting? The many conspiracies surrounding the killing

Its financial support ranges from emergency funding to address balance-of-payments crises to precautionary credit lines aimed at averting financial turmoil.

IMF loans come with conditions, released in instalments, requiring recipient countries to implement reforms. These often include reducing wasteful spending, improving budget transparency, tackling corruption, or increasing tax revenues. Investors also rely on IMF data, such as GDP and growth figures, to determine the payouts of debt instruments tied to economic performance.

The World Bank, on the other hand, provides low-interest loans to help nations develop infrastructure, from railways to flood defences. It also creates frameworks for financial innovations like green bonds and offers risk insurance.

Both institutions offer technical expertise on various subjects, from irrigation to central bank transparency.

Who needs the IMF?

A swathe of emerging market countries rely heavily on the IMF: Argentina could not pay government workers without it, and others from Senegal to Sri Lanka also currently count on its cash.

Having an IMF programme also assuages investors - both private and bilateral.

“The IMF has been for a long, long time an anchor specifically for debt investors,” said Yerlan Syzdykov, head of emerging markets at Europe’s biggest asset manager Amundi, adding U.S. expertise, and not just money, gives investors confidence in countries with IMF programmes.

Bilateral investors such as Saudi Arabia also increasingly look to the IMF as an anchor for their loans. Economy Minister Faisal Alibrahim said linking lending to institutions including the IMF ensured “more value, from every dollar, every riyal, that is dedicated to supporting other economies.”

What about the World Bank?

Investors work closely with the World Bank’s private investment arm, the International Finance Corporation, co-investing in public/private partnerships for countries seeking the estimated trillions of dollars needed for cleaner power and infrastructure.

Developed countries funding the institutions, including the United States, have used them to ensure global financial stability and to encourage countries to adhere to fiscally responsible, open economic models.

Both institutions, at the behest of their biggest shareholder, the United States, had backed countries such as Egypt, Pakistan and Jordan, where the U.S. has strategic interests, said Mark Sobel, the U.S. chairman of the Official Monetary and Financial Institutions Forum (OMFIF), a veteran Treasury Department official and former IMF board member.

“If there’s economic instability abroad, it can hurt the US economy,” Sobel said.

Does the developing world want them?

The IMF often earns the ire of protesters for advocating painful unpopular reforms to balance budgets such as cutting fuel subsidies or raising tax revenues.

Some Kenyans denounced the IMF during deadly protests last summer, while the Fund’s response to the 1997 Asian financial crisis was roundly panned.

But only a few countries, such as Cuba, North Korea and Taiwan, are not IMF members.

What happens if the US pulls its support?

“It would be a disaster,” said Kaan Nazli, emerging market debt portfolio manager at Neuberger Berman.

A founder member, the United States holds the largest single share of each institution - just over 16% for the IMF and just under that for the World Bank. This has given US policymakers a strong influence over decision-making that global economic leaders have come to rely on.

U.S. withdrawal would also surprise experts and investors, as the institutions give Washington that influence at a relatively low cost. Stepping back, they say, would be a gift to China and others seeking to dislodge it as the global leader.

Other countries could fill the financial gap; China has been keen for a larger role in global groups. It has pushed for a realignment of IMF shareholdings and to strengthen emerging market voices. China’s current share is just over 5%.

A US exit “would be a major blow to their functioning, and it would only help China,” Sobel said.

At the World Bank, US companies would have less access to contracts and work funded by the group. A change in the IMF shareholder structure would upend the power balance, making decisions less predictable and potentially less transparent.

Lost access to expertise from US Treasury officials could undermine trust, and rating agencies have warned US withdrawal could put multilateral lenders’ coveted triple-A credit ratings at risk, limiting their ability to lend.

With inputs from Reuters