As the US continues its pattern of withdrawing from international organizations, it seems that the IMF is next on the chopping block. Upon his inauguration in January, US President Donald Trump immediately directed his administration to withdraw from both the Paris Climate Agreement and the World Health Organization, establishing a precedent for disengagement from multilateral institutions. The Trump administration eyeing the IMF begs the question: What would happen to the global economy if the US makes an exit?

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There goes the greenback: The prominence of the USD as an international currency could face significant challenges following an IMF exit. The currency underpins most IMF operations — with borrowers typically requesting and repaying loans in USD — and withdrawal would precipitate a declining international demand for the greenback and eliminate its use within the fund. This would jeopardize the USD’s status within the IMF’s Special Drawing Rights (SDR), the international reserve asset that currently weighs it most heavily among its five constituent currencies.

The US could lose influence over IMF policies: Withdrawal would effectively eliminate US leverage over IMF policies and operations — areas the current administration has criticized for perceived structural flaws. More critically, US political influence will weaken substantially as the efficacy of US financial sanctions would be “fatally” compromised, writes the salmon-backed newspaper.

Could this spell a crisis for emerging markets? The repercussions for developing economies like Egypt could be particularly severe. The IMF has functioned as a crucial lender to nations experiencing financial distress, such as Argentina and Sri Lanka, who are heavily dependent on US support. Egypt, Pakistan, and Jordan also rely on IMF backing, with our outstanding IMF obligations reaching approximately SDR 8.7 mn — USD 12.3 bn — as of the turn of the year.

Private and bilateral investors have also been relying on the IMF to secure their loans. One investor country is Saudi Arabia, whose economy minister, Faisal Alibrahim, noted that the IMF — regarding institutional lending — ensures “more value, from every USD, every SAR, that is dedicated to supporting other economies.” Kaan Nazli, an emerging market debt portfolio manager at Neuberger Berman, called a potential US withdrawal “a disaster” in comments to Reuters, noting that it would threaten multilateral investors’ credit ratings and constrain their lending capacity.

A shift in power dynamics on the horizon? A US withdrawal could create a power vacuum that China and the EU would be positioned — and keen — to fill. The EUR and CNY rank second and third in SDR weighting, followed by the JPY and the GBP. These economies — particularly China and the EU — would likely compete to assume the US’s current IMF voting power and SDR weighting. The possibility of relocating the IMF headquarters to China has even been suggested.

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