Last week, the IMF published a blog post with its first assessment of the economic fallout from the Iran war. The blog post carries immense institutional weight—co-authored by all the Fund’s area department directors, the chief economist, and the heads of monetary/capital markets and fiscal affairs. Despite the heavy-hitting byline, the blog post leaves me with two overarching questions:
First, is IMF surveillance agile and forward-looking enough to respond to today’s economic shocks?
It was welcome news that the IMF, the World Bank, and the International Energy Agency subsequently announced a joint “war room” to monitor the impacts and coordinate responses. But the reality is that the Fund’s first public assessment came 30 days after the first missiles dropped, at a time when energy prices and uncertainty have soared and many of its members are feeling pressure. As this Atlantic Council piece clearly argues, the Iran war demonstrates the need for timelier IMF surveillance that is more responsive to today’s challenges, including weaponized supply chains. The upcoming Comprehensive Surveillance Review should tackle these issues head on.
Second, given the exceptional nature of this shock, what should the Fund do beyond regular business to support at-risk countries?
Several emerging market and developing economies (EMDEs) are staring down the barrel of terms-of-trade shocks, higher fiscal deficits, and tightening financial conditions. In its blog post, the Fund offers up an uninspiring response: countries need better policies, and the IMF will support through policy advice, capacity development, and, where needed, financing. These points are all correct at a high level—but are also essentially the Fund’s day-to-day mantra.
How the IMF can step up support
This is not a typical shock, and the standard policy prescription falls short. Based on the last two major global shocks—the COVID-19 pandemic and Russia’s war in Ukraine—we have hard-learned insights on exactly where and how the Fund can step in.
Most immediately, the Fund can deploy emergency financing to meet urgent balance of payments needs. Countries that do not need—or cannot quickly negotiate—a full program can request the non-concessional Rapid Financing Instrument (RFI) and/or the concessional Rapid Credit Facility (RCF) for low-income countries. These are single-tranche disbursements that only require countries to meet basic safeguards (i.e., there is no ex-post conditionality). During COVID, the IMF raised access limits to these facilities, through which it provided financing to over 80 countries. In the aftermath of Russia’s war, the IMF created a temporary Food Shock Window to provide additional lending space under these facilities—though only six countries, including Ukraine, accessed that window.
The IMF likely does not need to further raise access limits to these facilities as in past shocks. Current available access appears sufficient to provide countries in need with some cushion as they negotiate new or adjust existing full-fledged IMF programs. Countries that accessed the non-concessional RFI during COVID have already paid it back. While many low-income countries are still repaying COVID-era concessional RCF loans—which have longer repayment periods than the RFI—they all maintain some borrowing space with higher approved limits already in place until 2027. Plus, most countries have not accessed the RFI or RCF within the last year, so the yearly access limit of 50 percent of quota will not be a constraint (with Sri Lanka, which accessed the RFI following Cyclone Ditwah in late 2025, being a notable exception).
More broadly, this crisis should be a catalyst for IMF management and shareholders to rethink how the Fund supports vulnerable countries so that they can manage more frequent global shocks, while still advancing ambitious growth and reform agendas. The goal should be to help countries build buffers and resiliency, while not sacrificing near-term growth and development priorities. Unlike emergency financing, these responses will require more thought, political support, and calibration as the Iran war and spillovers evolve. Some examples of the IMF’s policy responses and tools include:
Moving to more growth-friendly program design
The IMF must work with current and future program countries to incorporate the new macroeconomic and financial reality post-Iran war. A key outcome of the IMF’s “three-pillar approach” to help countries facing liquidity challenges is the recognition of the need for “sequencing [domestic] reforms to accelerate economic growth and create jobs.” This mentality should inform the IMF’s engagement with countries dealing with the shock of the Iran war. And the upcoming Review of Conditionality should integrate this concept—along with a more ambitious recognition of the need for EMDEs to invest in their economies—into how the Fund engages in program design.
Debt relief
This crisis could provide the motivation for an international effort to draw a line under lingering debt problems in many EMDEs. During COVID, the IMF and the G20 rolled out the Debt Service Suspension Initiative (DSSI) available to all IDA-eligible countries, which transitioned into the case-by-case Common Framework for the countries in that group that needed further relief. The Common Framework is still notoriously slow though, despite some improvements over time. Even countries with acute liquidity challenges will avoid it at all costs, even if it means sacrificing social spending and investment to service high-cost debt.
Given the well-known depth and breadth of debt vulnerabilities among EMDEs—combined with another global shock—the IMF, working with the World Bank, should be working on a broader debt initiative to help countries facing urgent liquidity constraints. This could involve a new, coordinated effort to: (1) amp up concessional financing, for example through repurposing the Resilience and Sustainability Trust, to support ambitious growth and investment programs and (2) develop a more systematic tool to refinance high-cost debt to free up fiscal space. This initiative would be in addition to ongoing efforts to improve the Common Framework for countries that need restructuring and implement shock-absorbing clauses in future debt contracts.
Catastrophe Containment and Relief Trust
The IMF can draw on past innovations to put internal resources toward sustainably replenishing this tool. The CCRT is a grant-based trust fund that provides IMF debt service relief for the poorest countries hit by a shock. During COVID, the CCRT provided nearly $1 billion in debt service relief to over 30 countries. IMF management and shareholders could reimagine the trust to help the poorest countries if they have an ambitious, growth-friendly reform program and are tackling their debt vulnerabilities.
The CCRT is out of money, however, and now is not a great time to ask donors for big grant contributions. The IMF’s internal resources could be a solution, specifically the precautionary balances account. As of October 2025, the IMF held over SDR 26 billion in precautionary balances, compared to the Board-mandated precautionary balances target level of SDR 25 billion and a minimum of SDR 20 billion. As part of a larger rethink of how to support vulnerable EMDEs, IMF management and shareholders should revisit the successful mechanism designed to replenish the Poverty Reduction and Growth Trust from precautionary balances, redirecting excess net income to replenishing the CCRT.
Special Drawing Rights (SDR) allocation
While a powerful tool for the IMF, now is not the right moment to spend time or political capital on another SDR allocation. The IMF issued $650 billion in new SDRs following the COVID shock to boost liquidity across the board. However, a new allocation of SDRs is not an appropriate tool for the current shock, at least not at this juncture. COVID was a synchronized global demand shock that created a global demand for reserve assets, while the Iran war is asymmetric and centered so far on energy and commodities. Plus, the political feasibility of an SDR allocation in the United States (which has a veto over new allocations) is remote and would be a distraction from other IMF-related initiatives, like finalizing the 2024 quota increase and any of the other initiatives described above.
Whether it’s these initiatives or others, the IMF, the G20, and other key stakeholders should be working urgently on new ideas to help countries that have been feeling pressure after subsequent shocks, further heightened by the Iran war. Now is not the time to accept the status quo—the IMF can position countries to build more growth-friendly and resilient economic frameworks to withstand future shocks, which seem inevitable in the current geopolitical context.
