The war in Iran, following the trade war, has revived global inflationary pressures. Political, geopolitical, and energy uncertainty affects everyone, but not equally. Growth and employment forecasts are rather modest, and with high deficits and debts, the fear of a possible contagion to the financial sector comes hand in hand with scarce fiscal margins. So, caution must be exercised with the measures, not to overdo it, and to accumulate as much cushion as possible. That is, in summary, the opinion of the IMF in one of its most important moments of the year, the Spring Meetings that bring together in Washington the top officials of the global economic system. "While the global economy has shown resilience, the fiscal situation has worsened. Global gross public debt rose to almost 94% of GDP in 2025 and, if the current trend continues, it will reach 100% in 2029, a level that had only been recorded after World War II," it denounces.
If on Tuesday it published its World Economic Outlook and its Financial Stability Report, lowering growth forecasts and considering the possibilities of a global recession, the IMF addressed on Wednesday the fiscal issue and the situation of public accounts in its latest Fiscal Monitor, a lengthy document in which it warns that after a 2025 in which the dynamics of global public debt did not improve substantially, a new "source of fiscal pressure" now arrives in an already complex global scenario. "The message of this Monitor is clear. High debt, high interest rates, and persistent spending pressures leave no room for complacency. Countries that rebuild their reserves in calm periods will be better prepared to protect their citizens when crises hit. Clear communication and a credible sequence of measures will strengthen this effort. Those who do not comply may find, when the next test comes, that fiscal margin cannot be improvised," warns economist Rodrigo Valdés, head of the Fiscal Affairs department of the organization.
There were underlying problems, but the Iran conflict and the disruption of energy supply, "hardening financial conditions and forcing governments to choose between protecting their populations from price increases and preserving fiscal margin," have exacerbated everything. "The fiscal impact is highly asymmetric. Energy-importing countries, particularly low-income developing countries, face the highest costs, but the potential beneficiary group is smaller than in previous energy crises, given that the main Gulf exporters are directly affected by the conflict," say the experts from the organization.
Therefore, they consider it vital to "avoid unwanted demand stimuli at a time when monetary policy is addressing the inflationary effects of the disruption." A fiscal response "beyond automatic stabilizers and some specific support, even with ample fiscal space, would lead to persistently high inflation and interest rates," say international experts preparing for a possible round of tightening in central bank monetary policy.
"Secondly, support measures must be proportional to the severity of the disruption, specific and temporary, focused on the most vulnerable and designed to preserve fiscal sustainability. With limited fiscal space, budget reallocation should take priority, as new adverse events could arise, and destabilization of public debt markets would be very harmful. Widespread energy subsidies are distortive, fiscally costly, regressive, difficult to reverse, and generate significant international indirect effects," warns the IMF.
The recipe book is no surprise: "rebuilding fiscal buffers once the situation stabilizes is more important than ever. Crises rightly demand emergency support, but the response capacity fundamentally depends on pre-existing fiscal space. Too often, consolidation is postponed once the situation normalizes. Debt ratios progressively increase, rising during economic recessions and not returning to pre-crisis levels. As investors become less willing to absorb ever-increasing debt, delays increase the risk of abrupt and costly adjustments later on. The opposite is also true: greater fiscal credibility, built with timely efforts, reduces risk premiums and interest costs, opening up room for urgent spending," it emphasizes, reiterating its usual recommendations.
The U.S. economy, for obvious reasons, is at the center of the issue. Forecasts point to growth above 2% this yearand close to 3% next year, with the stock market performing well thanks to AI and massive investments in data centers across the country. However, it has a deficit of between 7% and 8% of GDP and no debt consolidation plan, despite it potentially exceeding 142% of GDP by 2031. Trump's recent tax law, the Big Beautiful Bill, has only worsened the situation. The bond market reaction in April of last year, and the tension since then, is a faithful reflection of this.
"A fundamental concern is not only the high level of global debt but also the trajectory implied by current fiscal policies. Rising interest rates and the market's increased sensitivity to fiscal news suggest that the room to accommodate this trajectory is shrinking," says the Fiscal Monitor. "The global deficit - the difference between projected primary balances and levels needed to stabilize the debt/GDP ratio - has virtually disappeared, going from a margin of over 1% of GDP a decade ago to almost zero today. This change represents a structural deterioration, reflecting policy decisions that have increased permanent spending on social benefits or reduced revenues, especially in some of the largest economies. Even in countries where debt dynamics have improved, public debt levels, in many cases, remain above the peaks reached during the COVID-19 crisis. As borrowing costs are expected to remain high, the combination of a weak primary position and the increasing debt service burden leaves no room for complacency," warns the organization led by Kristalina Georgieva.
The fiscal document does not address the situation by country, as the IMF did in March, including Spain. Back then, it pointed out that while the fiscal consolidation in recent years was very positive, bringing the deficit to 2.5% of GDP, it is more than necessary to accumulate fiscal resources now because the coming decades will be enormously challenging budget-wise due to the "significant" expected increase in spending associated with the aging population. The Fund precisely proposed eliminating reduced VAT rates, contrary to what the Government is promoting, despite protests from the European Commission.
In the Fiscal Monitor, there are only two references to our country. The first, positively, to compare with other nations that have a more worrying trend. "Aggregate figures suggest relative medium-term stability, but they conceal uneven underlying dynamics. The global deficit is expected to decrease only modestly from the current level, as an increase of approximately half a percentage point in the interest/GDP ratio offsets a gradual move towards a balanced primary position. Gross public debt is expected to stabilize around 94% of GDP. However, fiscal trajectories diverge significantly. Debt ratios in Spain and Japan are expected to decrease by 10 to 14 percentage points by 2031 as a result of favorable interest growth dynamics. In contrast, both Belgium and Korea are expected to experience significant increases in their debt ratios, although starting from markedly different levels," the paper states.
It is not just a matter of pensions or healthcare spending. "In Europe, several European Union members have activated exceptions to Union deficit rules to accommodate increasing defense spending. Disbursements for this spending are likely to be persistent and highlight the fiscal trade-offs faced by countries with limited fiscal space," the document emphasizes.
The second national reference is more bittersweet. The Fund uses one of the measures approved by a government that does not have a parliamentary majority to gain some fiscal space and sets it as an example to follow. But at the same time, it places Spain in an uncomfortable category marked by polarization. "When political polarization complicates general reforms, specific efficiency initiatives, such as digital public administration reforms in Spain, can create fiscal space with lower social and political costs," the technicians point out, without going into further details.