Dear reader,
In today's edition, we highlight:AI and the future of payments
Resilience in the Gulf
Energy shock: more targeted support
Policy frameworks built for shocks
Southeast Asia managing fragmentation
INNOVATION
AI and the Future of Payments Policy
Artificial intelligence could transform the payments system well before it reshapes the broader financial architecture, IMF First Deputy Managing Director Dan Katz said in remarks at the annual Sibos conference in Miami on September 28.
Cross-border payments—totaling nearly $1 quadrillion a year—could become more efficient with the help of AI. “At that scale, even improvements measured in basis points can translate into very large gains,” Katz said. AI agents could compare providers in real time, automate complex transactions, and streamline compliance and regulatory reporting.
Looking ahead, Katz said a world in which AI agents conduct commerce autonomously will require a more digital, interoperable, and programmable financial system. He pointed to ongoing experimentation with tokenization and stablecoins and new forms of public infrastructure, while emphasizing that policymakers should keep their options open and avoid locking themselves into a single model too early.
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THE GULF
Why Resilience is No Accident
Years of reforms and swift policy action helped Gulf countries contain the economic fallout from the Middle East conflict. Yet the region must continue strengthening resilience and productivity to withstand future shocks, IMF Managing Director Kristalina Georgieva said in remarks to Gulf Cooperation Council (GCC) finance ministers and central bank governors in Bahrain on October 1.
The conflict has reversed the region's growth momentum. The IMF expects the GCC economy to contract in 2026, reflecting a sharp drop in hydrocarbon production and a marked slowdown in non-hydrocarbon growth, although a strong recovery is projected for 2027 if shipping disruptions ease.
Georgieva called for action across three priority areas: calibrating fiscal support while rebuilding policy buffers, strengthening trade and transport infrastructure, and advancing diversification reforms to boost productivity, private-sector growth, digitalization, and AI adoption.
"Resilience is no accident, it is the dividend of reforms you have championed," Georgieva said.
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ENERGY SHOCKS
More Targeted Support
As the energy shock from the Middle East war has persisted, governments appear to be adjusting their response. New IMF Global Policy Tracker data suggest countries are relying less on broad subsidies and tax cuts that hold down energy prices for everyone, and more on allowing prices to reflect higher costs while directing support to those most affected.
About half of recently announced measures identified a specific beneficiary group, up from roughly 30 percent early in the shock—suggesting support may be becoming better targeted. “Targeting remains essential, particularly when resources are scarce and debt is elevated,” write Era Dabla-Norris, Antonio David, Daria Zakharova, and Aleksandra Zdzienicka. At the same time, fewer recent measures include clear end dates, raising the risk that supposedly temporary support becomes difficult to unwind.
The tracker captures more than 1,200 announced measures across 175 economies from late February to mid-September. Countries with higher debt, tighter financing conditions, or elevated inflation were more likely to let domestic energy prices rise and rely less on costly subsidies, tax cuts, and direct transfers—preserving fiscal space and incentives to conserve energy.
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POLICY FRAMEWORKS
Built for a Shock-Prone World
In the wake of a series of shocks, many countries are grappling with exceptionally high uncertainty, depleted buffers, rising debt burdens, and high inflation. Looking ahead, the impact of ageing populations, climate change, and geoeconomic fragmentation could mean increased spending needs and headwinds to growth, while AI-driven productivity gains could be a tailwind to growth.
Faced by these cross-currents, IMF staff research explores whether macroeconomic policy frameworks—the rules and tools that stabilize the economy and anchor expectations about inflation and debt—remain fit for purpose.
“In this emerging new normal, macro policy frameworks must be credible, flexible and integrated with scope to cope with more frequent shocks,” the authors write. This means identifying risks earlier and actively managing trade-offs between supporting growth, preserving price stability, and rebuilding fiscal buffers. It also requires greater attention to the interplay between fiscal, monetary, and external-sector policies—while keeping their mandates distinct.
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SOUTHEAST ASIA
Thriving amid Fragmentation
Southeast Asia’s economies thrived during the two decades of peace, stability, and global integration that followed the end of the Cold War and the Asian financial crisis. But times are getting tougher, Ben Bland, Asia-Pacific Programme director at Chatham House, writes in Finance & Development.
The war in the Middle East exposed Southeast Asia’s vulnerability to external shocks, Bland writes. “Rather than a one-off, the conflict is a harbinger of the shift to a more contested, fragmented world, where protectionism is on the rise, the multilateral system is strained, and established rules and norms are breaking down.”
Paradoxically, these mounting threats present opportunities for ASEAN. But to capitalize on them, Southeast Asian nations must first do four things, according to Bland: balance protectionism and openness; cooperate more closely on the adoption and regulation of new technologies such as AI; build a nimbler regional institutions; and expand economic, diplomatic, and security partnerships with other middle powers in Asia and Europe.
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Peter Walker
Senior Editor | IMF Weekend Read
pwalker@imf.org
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