IMF Flags Economic Peril, Advocates Urgent Domestic and Global Reforms

IMF Press Release

The world is facing exceptional uncertainty. Major policy shifts are reshaping the global trading system and capital flows, increasing trade tensions and financial market volatility, and straining international ties.

These developments come on top of the uncertainty caused by ongoing conflicts and major transitions that make the economic environment more challenging and unpredictable. Technological shifts and the artificial intelligence revolution are generating significant adjustment even as they promise new opportunities. Natural disasters and more frequent extreme weather continue to impose severe macroeconomic costs on many countries.

The trade tensions and associated tariffs are exacerbating the low-growth/high debt outlook. The IMF lowered its near-term growth forecasts in April to 2.8 percent for this year and 3 percent for 2026, and five-year growth forecasts remain at their lowest in decades.

Global inflation is falling but at a slower and less synchronous pace than previously. This is leading to more policy divergence between central banks, with knock-on effects on asset prices and exchange rates.

Low-income countries (LICS) have been hit particularly hard- by the current external environment. After demonstrating resilience through a series of shocks—including the COVID-19 pandemic and spillovers from Russia’s war in Ukraine—they are implementing difficult and much-needed reforms to restore macroeconomic stability. Nevertheless, under current conditions, these countries risk being knocked off the path toward income convergence and poverty reduction.

Trade Policy Uncertainty is off the Charts

Against this backdrop, the foremost economic challenge facing our members is growth—or rather, the lack of it. Achieving stronger growth will require countries to double down on domestic efforts to strengthen economic and financial stability, and improve their own growth potential. In the context of greater global uncertainty, the work starts at home.

Transformational reforms to lift productivity and boost growth are imperative: less red tape, increased competition, more entrepreneurship, a simpler and more coherent tax system, better digital structures, higher levels of economic participation, and deeper capital markets.

Policy efforts are needed to restore fiscal sustainability and build sufficient buffers to manage future shocks, which could be sizable and recurrent. This can be done gradually but should start now, so as to leave room for priority spending. The longer countries wait, the sharper the adjustment could be.

While working on the home front, countries should also collaborate internationally to promote a stable and predictable trade environment, facilitate debt restructuring, and address shared challenges.

Intensification of trade tensions could further reduce near-and long-term growth while divergent and rapidly shifting policy stances or deteriorating sentiment could trigger drops in asset prices, exacerbating risks to financial stability.

In short, the current environment demands clarity, commitment, and coordination.

The IMF is developing and tailoring its advice to help members meet these exceptional challenges. To this end, it has sought fresh perspectives with the creation of the new Advisory Council on Entrepreneurship and Growth.

The IMF will stay focused on its mandate of promoting macroeconomic and financial stability, further deepening its work in assessing spillovers from trade and industrial policy measures, and analyzing external imbalances.

As the global landscape evolves, the IMF remains flexible and responsible to the membership’s changing needs, adapting as necessary to developments in the world economy and policy priorities. This is illustrated by a number of decisions including the maintenance of higher level access limits; the reforms to a key loan vehicle for low-income countries—the Poverty Reduction and Growth Trust; and the update to the Charges and Surcharge Policy – all highlighted by the Managing Director in her letter.

The IMF is also dedicated to ensuring its recommendations are made with an eye to protecting the most vulnerable. Its policy advice encourages job creation, enhances social safety nets, tackles corruption, and contributes to equitable access to resources. Its capacity development strengthens institutional frameworks and equips policymakers with the skills to design and implement effective economic policies.

Eighty years on from its founding, the Fund continues to wield its unique convening power to promote multilateral cooperation in addressing global challenges. It facilitates dialogue among member countries to promote collaboration on a broad range of cross-border issues.

Times and circumstances change, but the IMF’s commitment to fostering global monetary cooperation, ensuring financial stability, and promoting sustainable economic growth endures.

Message from the Managing Director Kristalina Georgieva

Amid rising global inequality and slowing growth, the IMF calls for bold, cooperative policy shifts to unlock opportunity, support vulnerable nations, and ensure the global economic system remains resilient, inclusive, and fit for the future.

The global economy of the last 12 months has been defined by change. Huge transformations including digitalization, artificial intelligence, and demographic transitions are underway. On top of this, major policy shifts are reshaping global trade and capital flows.

While the global economy has been resilient in the face of successive shocks over recent years, the outlook remains tepid. The five-year-ahead global growth forecast stands at around 3 percent, well below the post-war expansion average of 3.7 percent. We continue to confront a low growth/high debt outlook.

Against this background, the IMF’s members face significant challenges. Among them are the need to preserve macroeconomic and financial stability, ensure debt sustainability, address excess imbalances that exist between countries, and lift growth prospects.

The path to achieving these goals requires urgent and substantial policy measures. This starts at home and countries can do much to get their own house in order. They can boost productivity and strengthen domestic growth; restore fiscal buffers to provide space for much-needed investment and in preparation for future shocks; and enhance financial stability and build resilience.

Looking beyond their own borders, countries should pursue cooperative solutions to shared economic challenges.

In the context of an evolving economic landscape, the Fund will continue to support its members. It will adapt as necessary to help countries navigate these challenging times and address imbalances.

The Fund provides this support from a position of strength. Not only does it maintain a robust balance sheet, but it has also exceeded its target for precautionary reserves which act as a financial buffer for the institution.

Over the past year, our Executive Board has taken important decisions to ensure that the IMF remains a strong, responsive partner. These include maintaining elevated access limits to provide adequate financial support to countries facing persistent shocks—a measure first introduced during the pandemic.

As part of our determination to exercise fiscal responsibility, we have advanced critical reforms to the Poverty Reduction and Growth Trust to bolster our capacity to support the most vulnerable countries while ensuring the Trust’s self-sustainability.

We have also updated our Charges and Surcharge Policy. This change will reduce borrowing costs for our members by an estimated $1.2 billion annually while at the same time maintaining the IMF’s capacity to further strengthen its own financial buffers. These steps reflect our commitment to serve all our members—with flexibility, responsibility, and fairness.

Times change, but we remain focused on our core mission: to help establish the conditions for macroeconomic strength and stability including through the promotion of durable growth, while achieving price and financial stability.

The state of change increases the challenge of good policymaking, but in challenge there is opportunity. We should seize this moment. With the right policy choices, a better balanced, more sustainable and prosperous world is within reach.