IMF urges fiscal discipline amid global uncertainty

The International Monetary Fund (IMF) has called for stronger fiscal discipline, greater trade cooperation and sound regulation of digital finance as countries face rising debt and growing economic uncertainty.

The IMF made the call in its 2026 Annual Report titled “Navigating a Precarious World,” released on Wednesday.

The report said the global economy was under pressure from rising public debt, increasing spending demands, trade and energy supply disruptions, geopolitical tensions and rapid changes in financial technology.

It said global public debt was rising again after briefly declining from historic pandemic-era levels, with debt projected to reach levels comparable to those recorded around World War II by 2028.

According to the report, the conflict in the Middle East had increased fiscal pressures through higher energy prices, tighter financial conditions and slower economic growth, particularly in low-income energy-importing countries.

It added that long-term government bond yields had risen and become more volatile, while interest payments had increased by almost half in three years, from about two per cent to nearly three per cent of GDP.

The IMF said the rising interest burden was diverting trillions of dollars from critical investments in education, infrastructure and other development priorities.

It also warned that rising fiscal vulnerabilities could increase financial stability risks, especially as major borrowers increasingly turned to short-term debt to manage higher interest costs.

To address the challenges, the IMF urged governments to prioritise spending carefully while protecting funding for essential social services and investments that support economic growth.

The fund said reforms to unsustainable public pensions and regressive fuel subsidies, though difficult, were necessary to free resources for debt reduction and development.

It also encouraged governments to mobilise more domestic revenue to strengthen digital infrastructure, education and social safety nets, particularly as artificial intelligence changes labour markets.

On trade, the IMF said geopolitical tensions, changing trade relationships and supply-chain disruptions were creating new risks for global economic growth.

It said global trade volumes rose by nearly five per cent in 2025 despite trade disruptions, with technology-related goods recording strong growth.

However, the fund expects trade growth to slow in 2026 as geopolitical conflicts and uncertainty continue to affect global commerce.

The IMF urged countries to diversify their trading partners and sources of supply while strengthening regional and international cooperation.

It also called for predictable and transparent trade policies to reduce uncertainty for businesses and consumers.

On digital finance, the IMF said the rapid growth of stablecoins, tokenisation and central bank digital currencies was creating both opportunities and risks for the global financial system.

It said digital finance could reduce cross-border payment costs, improve financial inclusion and expand access to financial services.

However, the fund warned that stablecoins could become unstable if their underlying assets lose value or users lose confidence, with large-scale redemptions potentially creating risks for financial markets.

The IMF therefore called for coordinated global regulatory frameworks for digital finance to manage emerging risks while supporting innovation and financial inclusion.