‘No choice’: IMF says developing countries must cut spending or restructure debt

BANGKOK, 13 OCTOBER 2026 —

The International Monetary Fund (IMF) warned on 13 October that low‑income, oil‑importing countries are “forced” to cut spending or restructure debt after the Iran war‑fuelled energy shock pushed them into a crisis.

Koeva Brooks said the war had “plunged the Middle East into conflict and sent global energy prices soaring.” The conflict, she added, had “curtailed oil and gas supplies” and caused a spill‑over into other goods, notably fertiliser. “Those prices have begun to bleed into other goods,” she noted, highlighting the broader inflationary impact that has hit the most vulnerable households.

The IMF’s warning is part of a broader assessment in its World Economic Outlook (WEO) released on the same day. The WEO identifies low‑income developing countries that are net oil importers and are not exposed to the artificial intelligence (AI) technology investment boom as the most vulnerable to the shock.

“For those countries that are most vulnerable, this is where the consumption basket is heavily weighted towards energy and food, and so indeed it is much, much more difficult,” Koeva Brooks said. “But unfortunately there is no other choice.”

The IMF’s analysis shows that many of these low‑income countries are in debt distress or close to it. “Where debt is not sustainable, then resolving that debt and having orderly and timely restructuring is always better than waiting, because then the cost of restructuring down the road is going to be much higher,” she said.

The IMF therefore urges governments to offer narrow, targeted subsidies to cushion the impact of the crisis, while also rebuilding fiscal buffers and addressing rising debt after years of fighting economic shocks since the Covid‑19 pandemic.

The IMF’s WEO also raises its forecast for 2026 global growth, largely on the back of advanced economies enjoying a boost from AI‑related investments and economic activity. Advanced economies are forecast to grow by 2.1 percent in 2026, with those in the AI supply chain such as Taiwan and South Korea posting significantly higher figures.

Koeva Brooks told AFP that 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.” In the IMF’s worst‑case scenario – of AI not delivering promised productivity gains – global gross domestic product forecasts for 2028 would fall by as much as 0.4 percent.

Climate‑related risks were another key part of the WEO in 2026. Koeva Brooks told AFP that some of the effects of a particularly intense El Niño phenomenon had already been taken into account in higher prices for certain food items. “We have a significant increase in beverage prices, in the prices of rice, and so on,” she said.

“Of course, it could turn out that the domino effect is even bigger than what we currently have.”

The IMF’s message is clear: the most vulnerable low‑income, oil‑importing countries must make difficult choices. “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 call for debt restructuring is aimed at preventing a spiral of unsustainable debt that could further erode fiscal space and hinder the ability of governments to respond to the crisis.

The IMF’s warning comes at a time when many developing economies are already grappling with high inflation, tight fiscal conditions and limited access to external financing. The energy shock has amplified these challenges, pushing households into deeper poverty and forcing governments to re‑evaluate their fiscal priorities. The IMF’s recommendation for targeted subsidies is intended to protect the most vulnerable while preserving fiscal sustainability.

In the broader context of the IMF’s WEO, the agency highlights the uneven impact of the AI boom. While advanced economies are poised to benefit from AI‑driven productivity gains, low‑income countries that are not part of the AI supply chain are left behind. This disparity could widen existing development gaps and exacerbate social tensions in the region.

The IMF’s focus on climate risks, particularly the impact of El Niño on food prices, underscores the interconnectedness of energy, food and climate shocks. Rising temperatures and extreme weather events can disrupt agricultural production, leading to higher food prices and further inflationary pressure. The IMF’s assessment suggests that the combined effect of energy and climate shocks could push many low‑income countries into a debt crisis if not addressed promptly.

The IMF’s call for debt restructuring is not a new concept, but the current crisis has accelerated the need for action. “Where debt is not sustainable, then resolving that debt and having orderly and timely restructuring is always better than waiting,” Koeva Brooks said. The IMF’s guidance is aimed at preventing a scenario where debt restructuring becomes a last‑minute, chaotic process that could damage investor confidence and further destabilise the global financial system.

The IMF’s warning also has implications for regional policy makers in Southeast Asia. Many ASEAN economies are net oil importers and have experienced rising energy costs. The IMF’s recommendation for targeted subsidies and fiscal buffer rebuilding could influence the policy mix adopted by governments in the region. The IMF’s emphasis on the need for timely debt restructuring may also prompt regional financial institutions to consider more flexible debt relief mechanisms for the most vulnerable members.

In conclusion, the IMF’s message to low‑income, oil‑importing countries is stark: the energy shock has left them with no choice but to cut spending or restructure debt. The agency’s World Economic Outlook highlights the uneven benefits of the AI boom, the rising threat of climate shocks, and the urgent need for fiscal prudence.

The IMF’s call for targeted subsidies and debt restructuring is aimed at preventing a deeper crisis and preserving the ability of governments to support their citizens in the face of multiple shocks.

Related: IMF · Petya Koeva Brooks · Bangkok