Daijiworld Media Network - Bangkok
Bangkok, Oct 13: The International Monetary Fund (IMF) has warned that low-income developing countries battered by rising energy and food prices amid the war involving the United States and Iran may have little choice but to cut public spending or restructure their debts.
Speaking to AFP on the sidelines of the IMF and World Bank Annual Meetings in Bangkok on Tuesday, IMF Deputy Director of Research Petya Koeva Brooks said heavily indebted countries that depend on imported oil were bearing a disproportionate share of the energy shock, leaving their governments with difficult choices over how to support their populations.
“Unfortunately, after years of the global economy being hit (by) shock after shock, debt levels have increased quite a lot, and at the same time, inflation has become a problem,” she said.
The conflict has disrupted energy supplies and pushed global oil and gas prices higher, adding to the financial pressures facing countries already struggling with elevated borrowing costs and limited fiscal resources. Iran's retaliatory actions against US allies in the Gulf have further complicated the situation by affecting regional energy supplies.
The impact is extending beyond fuel prices, with higher energy costs feeding into the prices of other goods and threatening supplies of essential agricultural inputs, including fertilisers. Rising costs of fuel, transport and food are particularly damaging for poorer households, which typically spend a larger proportion of their income on basic necessities.
The IMF has urged governments to provide narrowly targeted subsidies and other temporary assistance to vulnerable households rather than introduce broad-based support measures that could place additional pressure on public finances. It has also called on countries to rebuild fiscal buffers and address rising debt after years of economic shocks following the Covid-19 pandemic.
“Our messages indeed apply to most countries, but again, the trade-offs and the choices that have to be made are much, more difficult for the most vulnerable countries,” Koeva Brooks said.
The IMF's latest World Economic Outlook identified low-income developing countries that are net oil importers and have limited exposure to the artificial intelligence-driven investment boom as particularly vulnerable to the combined effects of the energy shock and uneven global growth.
For these countries, energy and food account for a substantial share of household consumption, making increases in prices especially difficult to absorb. Governments face the challenge of protecting vulnerable populations while ensuring that public debt remains manageable.
“But unfortunately there is no other choice,” Koeva Brooks said, referring to the difficult decisions confronting the most vulnerable economies.
She added that many low-income countries were already experiencing debt distress or were close to it. Governments unable to stabilise their debt positions should consider restructuring their obligations rather than postponing action.
“Where debt is not sustainable, then resolving that debt and having orderly and timely restructuring is always better than waiting, because then the costs of restructuring down the road is going to be much higher,” she said.
Debt restructuring generally involves renegotiating repayment terms with creditors to make a country's obligations more manageable. However, the process can be difficult, particularly for governments that need continued access to international financing to support essential public services and economic development.
Despite the worsening pressures on vulnerable economies, the IMF raised its forecast for global economic growth in 2026, largely because of stronger investment in artificial intelligence and related technologies in advanced economies and parts of Asia.
The fund projected global economic growth at 3.1 per cent in 2026, up from its earlier estimate of 3 per cent. However, the improvement masks significant differences between countries, with economies benefiting from AI-related investment better placed to withstand the effects of higher energy prices than those heavily dependent on imported fuel.
Advanced economies were forecast to grow by 2.1 per cent in 2026, while countries supplying hardware and other components to the AI industry, including Taiwan and South Korea, were expected to benefit from strong investment and demand.
Koeva Brooks warned that a slowdown in AI-related investment could have consequences extending well beyond the technology sector.
“If AI investment activity were to slow, the world economy would see a negative impact on output, not only in advanced countries like the US but again through trade linkages also in Asia,” she told AFP.
The IMF's adverse scenario, in which AI fails to deliver the productivity improvements currently anticipated, could reduce global gross domestic product forecasts for 2028 by as much as 0.4 per cent. Such a setback could affect countries that supply semiconductors, computing equipment and other products used in AI infrastructure, as well as economies linked to those supply chains.
Climate-related risks are another concern highlighted in the IMF's economic outlook. Koeva Brooks said the effects of a particularly intense El Niño phenomenon had already been partly reflected in higher prices for certain food commodities.
El Niño is a natural climate pattern involving warmer-than-usual sea surface temperatures in the tropical Pacific Ocean. It can alter weather patterns across the world, increasing the risk of droughts and floods and potentially worsening the effects of human-induced climate change.
The IMF official pointed to significant increases in beverage and rice prices, warning that the impact could intensify if climate-related disruptions prove more severe than currently anticipated.
The fund's warning highlights the growing divide between economies benefiting from technology-led investment and poorer countries struggling with high energy costs, inflation and mounting debt. For the most vulnerable nations, the combination of external shocks and limited financial resources is leaving governments with increasingly difficult choices over spending, debt repayment and support for their populations.
Sources: New Indian Express report on the IMF warning; Reuters report on the IMF's October 2026 global outlook; IMF World Economic Outlook update.