‘No other choice’: Poorer countries face painful spending cuts as Iran war drives up energy costs, says IMF

Bangkok, 13 October — The International Monetary Fund (IMF) has warned poorer countries that they face difficult decisions as the Iran war drives up energy costs, according to a report by AFP. IMF deputy director of research Petya Koeva Brooks spoke to journalists on the sidelines of the IMF's Annual Meetings in Bangkok. She explained that while many low-income developing countries are struggling with the energy shock caused by the Iran war, they often have "no choice" but to cut spending or face debt restructuring.

Koeva Brooks highlighted that heavily indebted oil-importing countries are among the worst affected by the energy shock. She noted that the global economy has been hit by a series of shocks in recent years, leading to increased debt levels and inflation. The US war on Iran has intensified the conflict in the Middle East and caused global energy prices to soar, affecting oil and gas supplies. The crisis has also impacted crucial fertiliser supplies, further straining the economies of vulnerable countries.

The IMF has advised countries to implement targeted subsidies to help their citizens cope with the crisis, while urging all governments to rebuild fiscal buffers and address rising debt. Koeva Brooks emphasized that the trade-offs and choices required by the most vulnerable countries are particularly difficult, stating that "there is no other choice" for these nations. She added that many low-income countries are already in debt distress or close to it and should seek debt restructuring if they cannot address the issue.

The IMF's World Economic Outlook, released on Tuesday, predicts that low-income developing countries that are net oil importers and not benefiting from the AI technology investment boom are the most vulnerable to the Iran war's economic shocks. Koeva Brooks explained that for these countries, consumption baskets are heavily weighted towards energy and food, making it more challenging for them to cope with the crisis. She stressed that in such cases, "unfortunately, there is no other choice."

The IMF has raised its forecast for global growth in 2026, attributing the improvement to advanced economies' benefits from AI-related investments. However, Koeva Brooks warned that if AI investment slows down, the world economy could experience negative growth effects, particularly in advanced countries and through trade linkages in Asia. She also noted that climate-related risks, such as the effects of a particularly intense El Niño phenomenon, have been considered in the IMF's forecasts.