IMF Strengthens Economic Risk Tools as Trade and Geopolitical Tensions Rise
The International Monetary Fund is updating its economic surveillance, lending and financial-risk assessment tools as countries confront rising debt, geopolitical fragmentation, artificial intelligence and more frequent global shocks.
In a speech delivered at the Atlantic Council, the IMF said the global economy was undergoing several major transformations simultaneously, creating an exceptionally high level of uncertainty for governments, businesses and financial institutions.
The changes include ageing populations in advanced and many emerging economies, expanding young populations in Africa and South Asia, worsening climate risks, rapid advances in artificial intelligence and digital finance, and the emergence of a more fragmented and multipolar geopolitical system.
These structural shifts are occurring after a succession of major shocks, including the COVID-19 pandemic, the global cost-of-living crisis, escalating trade tensions and wars in Ukraine and the Middle East. Despite these challenges, the global economy has demonstrated considerable resilience. However, the IMF warned that the scale, complexity and interaction of the changes taking place could exceed anything experienced since the creation of the post-war international system.
Economic stability remains the first priority
The IMF outlined four broad principles that it believes countries should follow to maintain stability and economic growth. The first is preserving macroeconomic stability.
Although the future direction of the global economy remains uncertain, the IMF said the basic principles of economics would continue to apply. Stable public finances, controlled inflation, sustainable debt, financial stability and balanced economic growth remain necessary for investment and prosperity. This has become increasingly important because many governments have fewer financial resources available to respond to future crises.
Fiscal deficits remain approximately 1.5 percentage points of gross domestic product above their pre-pandemic levels, while global public debt is projected to reach 100% of GDP by 2029.
Higher interest rates have also increased the cost of servicing government debt. For the median low-income country, interest payments on public debt have doubled during the past decade. The IMF warned that governments could not rely solely on fiscal and monetary policy to offset every economic shock or accommodate major structural changes. Future responses would need to be prudent, targeted and supported by credible medium-term policy frameworks.
Countries seek more resilient supply chains
The second principle is strengthening economic resilience. Supply-chain disruptions, wars and geopolitical tensions have pushed economic security higher on government agendas. Countries are working to diversify their economic relationships, secure important supply chains and reduce their exposure to interruptions in energy and other essential goods.
The IMF said more than 10,000 trade-distorting industrial-policy interventions were recorded globally between 2023 and 2025.
While governments may introduce such measures to protect strategic industries or strengthen domestic production, they can also distort trade and contribute to economic imbalances between countries. Energy security has also become more important after wars and geopolitical tensions disrupted international energy supplies.
The IMF said countries needed to improve their capacity to withstand such shocks while maintaining an open and stable international economic system.
In separate information : The WTO confirms that industrial policy has experienced a major resurgence and is becoming a structural feature of the global economy.
Digital finance creates new financial risks
Rapid changes in financial technology are creating opportunities for greater efficiency and wider access to financial services. However, the growth of digital finance and non-bank financial institutions could also create new channels through which economic and financial shocks spread.
Non-bank financial institutions include entities such as investment funds, insurers and other financial intermediaries that perform some bank-like activities without operating as traditional commercial banks.The IMF said effective regulation, supervision and risk monitoring would remain essential as financial markets became more technologically advanced and interconnected.
It is also strengthening its examination of relationships between banks and non-bank institutions, along with risks associated with technology and cybersecurity.
Separate analysis from the Bank for International Settlements reinforces these concerns. The BIS says digital innovation is reshaping financial services, payment systems and the wider financial infrastructure, while also changing the types of risks faced by banks, regulators and central banks.
The Basel Committee on Banking Supervision has similarly examined the growth of digital financial technologies and new financial-service providers, including their implications for banking supervision and financial stability. The BIS has also documented the expansion of central-bank work on digital currencies and digital payment systems.
Its recent research refers to the growing global footprint of digital finance, indicating that digital financial infrastructure is no longer a developing side issue but an established part of the international financial system.
Readers can explore the wider regulatory and financial-stability implications through the BIS research on digital finance and the Basel Committee’s report on the digitalisation of finance.
Governments must plan for several scenarios
The third principle is managing uncertainty. Forecasting economic growth, employment, inflation, government finances and interest rates has become more difficult in an environment characterized by frequent shocks and rapid structural change.
The IMF said governments needed to become more agile and adaptable while maintaining credible fiscal and monetary frameworks. It identified three important requirements for managing uncertainty.
Countries should be able to adjust their policies as conditions change, preserve confidence in their medium-term fiscal plans and commitment to price stability, and prepare for several possible economic scenarios rather than relying on a single forecast. Scenario planning and contingency measures would allow governments to respond more effectively when unexpected disruptions occur.
Private-sector innovation will be essential
The fourth principle is creating an environment in which the private sector can invest, innovate and improve productivity. Governments will continue to have an essential role in providing public goods, maintaining social protection and establishing stable conditions for private economic activity.
However, the IMF said embracing technological innovation would be particularly important as countries attempted to increase productivity and manage the economic effects of ageing populations and other structural changes. Artificial intelligence could become as economically significant as the Industrial Revolution, with major implications for productivity, employment, incomes, wealth distribution and geopolitical competition.
Digital finance is also expected to become an increasingly permanent feature of the financial system. The IMF said governments would need to encourage innovation while monitoring its wider economic and financial effects. Countries would also need to ensure that the benefits of technological progress supported inclusive growth rather than increasing inequality.
IMF begins five major policy reviews
To respond to the changing global environment, the IMF has started a comprehensive update of its policies and economic toolkit.
Its work is focused on five priorities:
- managing shocks and uncertainty while building resilient policy frameworks;
- reducing economic imbalances between countries;
- identifying and addressing public debt risks;
- protecting financial stability during rapid financial innovation; and
- tailoring financial assistance for countries facing balance-of-payments difficulties.
Five major IMF reviews are being undertaken as part of this work.
Economic surveillance to use more scenarios
The Comprehensive Surveillance Review is examining how the IMF assesses the economic conditions and policy frameworks of its member countries. The Fund intends to make greater use of alternative economic scenarios and contingent policy recommendations.
Instead of basing advice mainly on one expected economic outcome, the IMF will increasingly examine how countries could respond under different possible circumstances. This scenario-based approach has already been introduced into the IMF’s World Economic Outlook and is expected to be used more extensively in assessments of individual countries.
The IMF also intends to tailor its advice more closely to national circumstances because international shocks can affect economies in different ways.
The OECD separately supports the underlying methodology by publishing work on fiscal-risk assessment, uncertainty and scenario-based analysis. However, it cannot confirm what the IMF intends to implement internally.
IMF programmes to focus on targeted reforms
The IMF’s Review of Program Design and Conditionality examined how Fund-supported programmes performed during the exceptional period of repeated shocks following the pandemic.The review found that the IMF generally responded with flexibility, including adjusting programmes when circumstances changed and helping countries rebuild financial buffers where possible.
In the future, IMF-supported programmes are expected to place greater emphasis on contingency planning.The Fund also expects to priorities fewer but more targeted and substantial economic reforms, particularly as many countries have limited financial buffers available.
Low-income-country debt framework updated
The financing environment for low-income countries has changed significantly.Official development assistance has declined, while governments in some developing economies are increasingly borrowing from local banks and domestic financial markets.
The IMF is therefore updating its Debt Sustainability Framework for Low-Income Countries.The revised framework will more fully incorporate domestic debt, which now represents a growing proportion of government borrowing in many countries.It will also improve the assessment of longer-term economic pressures arising from population changes, climate risks and development needs.
Financial assessments to strengthen early warnings
The IMF is also reviewing its Financial Sector Assessment Program, which evaluates the stability and resilience of countries’ financial systems.The updated programme is intended to strengthen the Fund’s ability to provide early warnings about emerging financial risks.It will expand its examination of connections between banks and non-bank financial institutions, as well as risks involving technology and cybersecurity.
The IMF also plans to integrate the findings from these financial assessments more closely into its policy discussions with member countries.
Global economic imbalances receive greater attention
Another review is upgrading the IMF’s External Sector Assessment tools.These assessments examine factors such as current-account surpluses and deficits, exchange rates, international investment positions and other economic relationships between countries.The IMF said this work had become more important because of increasing imbalances between countries running large current-account surpluses and those experiencing deficits.
The upgraded framework will examine how macroeconomic trends, trade measures and industrial policies interact to shape international balances and wider patterns of economic growth.Large and persistent imbalances could increase the risk of sudden or disorderly economic adjustments if they are not addressed.
Cooperation becomes harder but more important
The IMF acknowledged that it did not have all the answers and would itself need to adapt to the evolving economic and geopolitical environment.Its greatest institutional strength, according to the speech, is that virtually every country in the world has a seat at the table.The IMF currently has 191 member countries, providing a common platform through which governments can identify economic challenges, exchange ideas and develop possible solutions.
However, responsibility for anticipating economic risks, developing appropriate policies and building domestic support ultimately remains with individual governments.The IMF said its role was to assist countries through economic analysis, policy guidance, financial support and international cooperation as they navigate an increasingly uncertain global economy.
Editorial Note: This article is intended for informational and educational purposes only. It provides analytical insights based on publicly available information and does not constitute financial, legal, or political advice. Readers are encouraged to consult official sources and expert advisors for verified guidance.
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