The conflict in the Middle East is continuing to weigh on the global outlook, at a time when the world economy was already navigating a difficult global environment, characterized by high uncertainty, elevated debt, and limited policy space. Its initial effects were concentrated on energy and major shipping routes. They are now transmitting more broadly through trade, transport, inflation, financing conditions, and confidence. As the effects of the conflict broaden, resilience has so far helped contain their impact, but countries' capacity to absorb further shocks remains uneven and constrained, which could make it harder to sustain medium-term resilience. In this environment, The IMF's role remains essential to fostering effective multilateralism and international cooperation, while supporting members through even-handed surveillance, country-specific policy advice, and tailored capacity development.
We welcome the overall direction of the Managing Director's Global Policy Agenda and its emphasis on credible policies, private sector-led growth, and international cooperation. The immediate priority is to preserve stability in these times of heightened uncertainty while avoiding policy responses that weaken medium-term growth or further erode buffers. At the same time, the increasingly differentiated impact of successive shocks reinforces the importance of policy advice that reflects members' circumstances, exposures, and institutional capacity. With major reviews completed, the Fund has an important opportunity to translate institutional reform into more effective support for a membership facing mounting pressures.
Global Economy: Resilience Under Growing Pressure
The global economy has held up better than initially feared, although resilience has come at a cost. Buffers have eroded, medium-term growth remains subdued, and the aggregate picture masks substantial divergence across countries and sectors. Persistent trade policy uncertainty is adding to these pressures and weighing on investment, trade, and confidence. Financial vulnerabilities are also becoming more interconnected. Elevated sovereign yields in major economies are increasing debt-service burdens and weighing on global financial conditions, with potentially disproportionate consequences for emerging market and developing economies (EMDEs), particularly vulnerable debtor nations with limited fiscal space. Large capital flow swings and higher refinancing costs can crowd out essential investment and compound existing vulnerabilities. Meanwhile, high leverage, liquidity mismatches, and opaque exposures among some nonbank financial institutions (NBFIs) can amplify abrupt shifts in risk sentiment. Artificial intelligence (AI) investment is supporting activity and offers potential productivity gains, while high valuations concentrated in a few firms and increasingly interconnected financing warrant continued vigilance. Expanding stablecoin use, including in some EMDEs, can create new channels for transmitting or amplifying monetary and financial vulnerabilities.
The conflict in the Middle East is a major driver of the deteriorating outlook, underscoring the close interdependence between energy security and global financial stability. The initial energy and shipping lane shock has moved downstream from crude oil and gas to refined products, especially transport fuels, fertilizers, and other essential inputs, with wider consequences for inflation, food security, and production. Such pressures fall most heavily on economies least able to absorb higher costs. Supply rerouting and inventory drawdowns have cushioned the immediate impact while reducing the capacity to withstand further disruption. If prolonged, these pressures could weigh further on the already subdued medium-term growth outlook. The experience underscores that energy security depends on both adequate supply and the ability to bring it reliably and affordably to market. Sustained investment across the energy value chain, from production and refining to storage and diversified transport routes, and across all sources, including oil and gas, remains essential to global macroeconomic and financial stability.
Monetary policy should safeguard price stability and respond to the source and persistence of price pressures, consistent with each country's monetary and exchange rate framework avoiding overreaction to temporary supply-driven increases while responding firmly when inflation pressures broaden or threaten to unanchor inflation expectations. Fiscal policy should address debt and refinancing vulnerabilities and rebuild buffers while preserving productive investment and targeted support for vulnerable households. Financial regulation and supervision should strengthen resilience to shocks from interconnected liquidity, leverage, and funding risks, supported by consistent implementation of agreed international standards. As AI and digital finance evolve, policymakers should seek to harness the benefits of innovation where appropriate, while safeguarding financial and operational resilience, including cyber resilience, and calibrating oversight to the relevant sources and transmission channels of risk. Structural reforms should raise productivity, increase potential growth, broaden the revenue base, improve spending efficiency and crowd in private investment. Strong multilateral cooperation will be important to manage spillovers that domestic policies alone cannot contain.
The Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region is experiencing sharply differentiated effects of the conflict through energy, trade, logistics, tourism, and financing channels. For energy exporting countries that are directly affected, higher commodity prices offer little relief where production, export routes, or productive capacity have been disrupted. Energy-importing emerging markets face a different set of pressures as higher import bills strain external balances, fuel inflation, and compound debt and financing vulnerabilities. Countries with diversified infrastructure and available buffers have greater room to adapt, while others face lasting losses. Low-income countries (LICs) and fragile and conflict-affected states (FCSs) face an especially difficult combination of higher essential costs, elevated debt vulnerabilities, tighter financing, depleted buffers, and declining official development assistance. In FCS, prolonged disruption can further weaken already limited institutional capacity, making stabilization and recovery more challenging. The Fund and international partners should provide sustained and coordinated support to FCS, calibrated to countries' exposure and implementation capacity, with appropriate burden-sharing given declining development assistance and increasingly constrained Fund resources. This should include continued support for existing Fund-supported programs and enhanced engagement with other vulnerable members, including through financing where appropriate and targeted technical assistance.
IMF Role: Turning Reform into Stronger Support
The Fund should stand ready to deploy all its tools to provide timely support to the membership. Following the recent reviews of surveillance, program design and conditionality, the Financial Sector Assessment Program (FSAP), and the joint IMF–World Bank Debt Sustainability Framework for Low-Income Countries (LIC-DSF), the focus should now shift to effective and even-handed implementation, guided by clear priorities, appropriate Board oversight, efficient use of resources, and the Fund's core mandate.
Surveillance should be focused, forward-looking, agile, and responsive to members' needs, strengthening macrofinancial and external sector analysis to support resilience, growth, and risk management and facilitate orderly external adjustment. The Fund should deepen analytical work on large and persistent global imbalances, including their underlying drivers, transmission channels, spillovers, and the risks of disorderly adjustments. External sector assessment should better reflect structural and country-specific characteristics, with selectivity and appropriate judgment preserving the depth and credibility of the Fund's advice. FSAPs should keep pace with developments in banking sector resilience and with systemic risks from NBFIs, private credit, digital finance, and cross-border linkages, including interactions among global sovereign yields, capital flows, and domestic vulnerabilities. Assessments should ensure meaningful engagement across the membership, focus where risks are material, and integrate more effectively with surveillance and capacity development (CD).
Fund-supported programs should remain realistic, adaptable, and tailored to members' circumstances, helping members resolve balance-of-payments problems and restore external viability. Conditionality should focus on measures critical to program success, with reforms prioritized and sequenced to reflect country ownership and implementation capacity. Stronger risk assessment and contingency planning should support timely policy adaptation while preserving credible policy commitments. The revised LIC-DSF should improve early risk identification and support responsible financing decisions while preserving access to sustainable development finance. Its implementation should be supported by clear guidance, consistent judgment, and tailored CD for members with limited institutional and statistical capacity. Timely, orderly debt treatments and creditor cooperation, including through the G20 Common Framework, remain essential where debt is unsustainable.
CD will be central to translating the Fund's recent reforms into tangible results for members. Fund CD should strengthen members' institutions and policy implementation capacity, particularly in LICs and FCS, and align closely with surveillance and lending priorities. Surveillance, financing, and CD should be closely integrated, with complementary support from the World Bank and other partners according to their mandates. Saudi Arabia reaffirms its support for Fund CD, including through our USD 279 million pledge and the Regional Office in Riyadh.
The Fund should integrate analysis of AI's implications for productivity, labor markets, investment, and financial stability into surveillance and CD. This should cover adoption, production, infrastructure, and energy requirements, with particular attention to opportunities and risks for EMDEs, LICs, and FCS, drawing on external expertise where appropriate.
The Fund should deepen its understanding of the drivers of stablecoin adoption and the channels of risk transmission and amplification to inform country-specific surveillance, program design, and CD, particularly for EMDEs. This work should remain guided by the Fund's core mandate, in coordination with central banks, supervisors, and international standard-setting bodies (SSBs).
IMFC Chairmanship and the Path Forward on Reform
We welcome the one-year extension of the IMFC chairmanship to sustain dialogue bridging perspectives, and support consensus across the membership. The Diriyah Guiding Principles provide a shared foundation for advancing the Fund's governance reform. Building on the constructive engagement that led to their endorsement, the priority should now be to maintain momentum and translate these principles into practical progress through continued dialogue and consensus building. Our collective objective should be to achieve broadly acceptable outcomes that strengthen representation across the membership while preserving a strong, adequately resourced, and quota-based Fund.
Saudi Arabia's Economic Resilience and Reform Progress
The Saudi economy remains resilient in the face of the ongoing conflict in the Middle East and continues to navigate exceptional regional uncertainty from a position of strength, supported by prudent policy frameworks, substantial fiscal and non-fiscal buffers, and the institutional capacity to respond swiftly and coherently. A well-capitalized and liquid banking system and forward-looking macroprudential policy provide a strong foundation for financial resilience. Financial soundness indicators remain among the strongest in the region, asset quality has improved, liquidity remains strong and stress tests confirm the banking system's capacity to withstand severe shocks. Decades of prudent economic and risk management and strategic investment have helped preserve domestic stability, while diversified energy infrastructure and logistics networks have enabled the Kingdom to sustain oil supplies and regional trade, helping cushion the global energy shock. With the economic impacts of the conflict still unfolding, Saudi Arabia continues to adapt its response to support economic activity, safeguard monetary and financial stability, and preserve room for further action, while maintaining fiscal sustainability.
Vision 2030, marking its tenth anniversary, has reinforced Saudi Arabia's economic foundations by broadening the non-oil economy, expanding private sector participation, and strengthening institutions and implementation capacity. We remain committed to advancing this transformation through reforms that raise productivity and expand opportunities for private investment, while safeguarding fiscal sustainability and improving spending efficiency. Our policies will continue to respond flexibly to evolving conditions while remaining firmly anchored in our long-term development objectives. Looking ahead, Saudi Arabia will continue to advance diversification, deepen financial markets, strengthen human capital and raise productivity, and further enhance institutional capacity and infrastructure to support sustainable and inclusive growth. The Kingdom's experience demonstrates that resilience is built over time through credible institutions, prudent policies, strategic investment, and sustained reform.