WASHINGTON D.C.: Governments should resist the urge to roll out broad fuel subsidies to cushion the blow of surging energy prices triggered by the Middle East conflict, the International Monetary Fund warned on Wednesday, urging more targeted and fiscally responsible support instead.

In its latest Fiscal Monitor report, the IMF said the war has compounded existing fiscal pressures, with higher interest rates and rising energy costs straining public finances, particularly in emerging markets and developing economies.

Rodrigo Valdes, the IMF's fiscal affairs chief, said countries should avoid policies that blunt price signals and instead adopt temporary, targeted cash transfers to support vulnerable households.

"We don't have oil. We don't have energy. Energy needs to be more expensive for everybody, so that the adjustment happens and we consume less," Valdes told Reuters in an interview.

He cautioned that suppressing energy prices through subsidies could worsen global imbalances. "You can pass through (higher energy prices), and then you can do other things to help," Valdes said. "It's a global shock, and if countries suppress the price signal, the global price will be higher ... It's very important to give price signals so demand can adjust."

The IMF cut its global growth outlook earlier this week, warning that the conflict could push the world economy to the brink of recession if it intensifies and oil prices remain above US$100 per barrel through 2027.

Officials said the policy response so far has been more restrained compared with past crises. Era Dabla-Norris, the IMF's deputy fiscal affairs director, noted that governments appear more cautious in deploying large-scale fiscal support.

"Countries are not necessarily coming out in full force with huge packages," Dabla-Norris said at a news conference. "In an environment ... where fiscal space is much more constrained, and governments are facing many different trade-offs, not just in the near term, but also over the medium term, choosing a sort of more disciplined way of cushioning the impact is what we are advocating."

Valdes said the eventual economic fallout would depend on several factors, including the extent of damage to energy infrastructure, export controls, and how quickly other producers can ramp up supply.

Beyond the immediate crisis, the IMF warned that governments must not lose sight of mounting medium-term risks, particularly rising public debt levels.

Global government debt climbed to 93.9 percent of gross domestic product in 2025, up from 92 percent the previous year, and is projected to reach 100 percent of GDP by 2029, earlier than previously expected. Debt levels could rise further to 102.3 percent by 2031, and as high as 121 percent within three years under a severe economic scenario, Valdes said.

This would mark the highest debt burden since the aftermath of World War II, the IMF noted.

At the same time, borrowing costs are rising. Interest payments reached nearly three percent of GDP in 2025, up from two percent four years earlier, adding further strain on already stretched government budgets.

Valdes also flagged structural risks in global debt markets, including the growing role of investors such as hedge funds, which he described as "less firm hands to hold debt for the long run." Shorter debt maturities are also increasing sensitivity to interest rate changes.

Additional pressures include higher spending on defense, energy transitions, and climate goals, as well as slower revenue growth. Trade fragmentation, political instability, and potential financial market disruptions, including sharp moves in sectors such as artificial intelligence, could further tighten financial conditions.

The IMF urged countries to act decisively once immediate pressures ease. "Rebuild fiscal buffers once conditions stabilize and do so without delay," the Fund said.

Valdes said some governments have begun preparing for fiscal consolidation, but many still lack clear plans. "We're not at a crisis point ... but the more you delay the measures, the steeper will be the effort that you need, and the higher the risk of having a disorderly consolidation later," he said.