At a press briefing today by the Fiscal Affairs Department of the IMF, during the Annual Meeting in Bangkok, Thailand, Rodrigo Valdés spoke about the effects of the oil price shock on Global GDP.
“My remarks will focus today on the global fiscal situation, the outlook and our policy recommendations, including the fiscal monitors. Analytical chapter, Taxing Better to Boost growth. Let me begin with global developments across major countries, there is little evidence of fiscal consolidation this year.
If anything, policy has been moving in the opposite direction.
Fiscal pressures are also evident in countries responses to the 2026 energy shock, although more and more countries have allowed full prices to reflect scarcity, that is passing through the higher prices.
Many still rely on costly, broad based measures rather than targeted temporary and tailored support. This price suppression measures are fiscally costly and often regressive. Our estimate is that, taken together, the fiscal cost of all these measures is about one half percent of global GDP.
But this is outcome is not guaranteed. Even if that improvement materializes, the global debt ratio is projected to keep rising and reach 100% of the GDP by the end of the decade.”
Valdés also addressed the policy agenda to reform taxation to reduce barriers to work, investment, and production.
“So the big picture is clear. Fiscal risks are rising and action is needed in many countries.
Let me conclude with three policy recommendations. First, improve tax systems and the composition of public spending so that both are less distortionary and more growth friendly.
The answer lies in basically better tax design at the microeconomic level so that the design minimize distortions, always taxes produce distortions, but we can design taxes in a way that they are less distorted. And this will reduce barriers to investment, work and production while safeguarding revenue.
The second policy recommendation is that countries with elevated debt or high risk begin fiscal consolidation now.
Potential external spillovers make this even more urgent. Countries should anchor this consolidation in a credible plan and realistic assumptions supported by strong fiscal frameworks, better institutions and transparency. And the third and final policy recommendation is that countries should respond to the energy shock by allowing prices to reflect energy scarcity.
As we have said before, protecting people is not the same as protecting the price of fuels.”
To watch the full briefing, click here.
