Governments in emerging-market countries affected by the conflict in the Middle East should limit interventions to short-term, well-directed support rather than broad-based relief, the president of the European Bank for Reconstruction and Development said in comments ahead of the bank's annual meeting.
Speaking ahead of the London-based lender's gathering, which opens on Friday in Riga, Odile Renaud-Basso said recent and ongoing shocks have left many economies with tighter budgets and heavier debt loads. Those strains, she said, are concentrated in the regions where the EBRD invests - emerging Europe, Central Asia, the Middle East and Africa - and make indiscriminate fiscal responses unaffordable for some governments.
"There is less fiscal space in a number of countries," Renaud-Basso said. "You need to be very targeted, very focused on the most affected people ... and avoid very generic across the board measures that could be very expensive."
The bank's president framed the warning against the backdrop of what she described as six years of consecutive crises, beginning with the COVID-19 pandemic and continuing with Russia's full-scale invasion of Ukraine. Those events, she said, have pushed debt burdens higher for many states in the bank's footprint.
New pressures from the Middle East risk compounding those vulnerabilities. Renaud-Basso highlighted the possibility of energy price spikes and fertiliser shortages linked to the war in Iran as factors that could further lift food prices and inflation.
In light of recent developments, the EBRD will lower its growth outlook and raise its inflation forecast in an economic update scheduled for publication on Wednesday, Renaud-Basso said, declining to provide further detail in her remarks. The bank's February forecast had projected 3.6% growth this year and 3.7% in 2027 across the 41 countries it covers.
To help address the fallout from the Iran war, the EBRD announced in April that it would deploy c5 billion into affected countries. Renaud-Basso said that public support will not be sufficient on its own and that mobilising private capital is essential.
"For a number of countries it means that if they want to be able to invest in infrastructure, to invest in energy security, to finance the green transition, to develop connectivity, and so forth - they need to rely on the private sector," she said, noting interest from institutional investors such as pension funds in the Netherlands and the Nordics.
The EBRD also plans to focus attention on Ukraine at the Riga meeting. The bank will host a donor meeting on the Chornobyl nuclear plant, where the protective confinement was damaged by a Russian drone strike last year.
Asked about recent market turbulence in Turkey - one of the bank's important markets - Renaud-Basso said conditions appeared to have stabilised. She recalled that political moves against the main opposition party had hit the lira and other assets some two weeks earlier.
"A central bank always needs to remain vigilant, and in the current circumstances, a central bank's job is probably one of the most difficult one, in particular in Turkey," Renaud-Basso said.
Context and implications
The EBRD's position highlights the trade-offs policymakers face in environments where public finances are constrained: temporary assistance aimed at the most affected households can mitigate social pain without materially worsening sovereign debt positions, while broader subsidies risk high fiscal costs. At the same time, the bank is emphasising private-sector-led financing to support long-term investments in energy and infrastructure.