The fiscal outlook is subject to "elevated uncertainty," as the full consequences of the Russia-Ukraine conflict and spillovers from sanctions on Russia are "unknown and will vary across countries," the International Monetary Fund (IMF) said in a report Wednesday.

"Governments' responses will be shaped against the difficult background of high and increasing inflation; slowdown in growth; high debt and tightening credit conditions," the IMF said in its newly released Fiscal Monitor, noting that fiscal policy has "a special role" to play when things go wrong.

Economies worldwide have accumulated "layer upon layer of legacies" from past shocks since the 2008 global financial crisis, and "extraordinary" fiscal actions in response to the COVID-19 pandemic have led to a surge in fiscal deficits and public debt in 2020, according to an IMF blog also published Wednesday.

IMF economist Jean-Marc Fournier, who co-authored the blog with his colleagues, noted that global deficits and debt are falling from record levels, but the risks around the outlook are "exceptionally high" and "vulnerabilities are rising."

The IMF estimated that global public debt is expected to fall in 2022 and then stabilize at about 95 percent of gross domestic product over the medium term, 11 percentage points higher than before the pandemic.

Although inflation surprises can reduce deficits in the short term, their relief to public finances is usually "temporary," the Fiscal Monitor noted. "If inflation expectations and inflation volatility increase, government bonds become less attractive to investors, and the costs of borrowing rise."

In many cases, countries have taken measures to limit the rise in domestic prices, which could "exacerbate the global imbalances between demand and supply," putting further upward pressure on international prices, and lead to energy or food shortages, it noted.

A better solution, according to the report, would be to provide "targeted, temporary, and direct support to vulnerable households," while allowing domestic prices to adjust.

The latest report noted that high uncertainty and marked divergences across countries require a "tailored" and "agile" fiscal policy response, adding that in many emerging markets and low-income developing countries, "trade-offs are harsher."

Higher inflation and tightening global financial conditions call for prudence, whereas fiscal support is needed for those countries that will be the hardest hit by higher commodity prices and where recovery was already weak, it said.

"Fiscal reforms can ease these trade-offs," it said. "Sound and credible medium-term fiscal frameworks help to manage market expectations, containing sovereign borrowing costs."

Moreover, measures to address immediate needs from high food and energy prices should not detract from actions to tackle long-standing challenges such as climate change, the report said.

"It is even more urgent now to ensure greater resilience through investment in health, food, and energy security from cleaner sources," it said. "Moving toward a more diverse, clean, and renewable energy matrix will ensure energy security and facilitate the green transition."

At a virtual press conference during the 2022 spring meetings of the IMF and the World Bank, Vitor Gaspar, director of the IMF's Fiscal Affairs Department, urged policymakers to enhance global cooperation in some "absolutely key" areas.

Aside from restoring peace, global cooperation is urgently needed to end the pandemic, safeguard food and energy security, mitigate climate change, and address the issue of debt and development, he said.