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October 2018
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Wednesday, 10 October 2018 13:00

Financial stability risks remain elevated, IMF

Financial stability risks remain elevated, IMF

Although the global expansion has plateaued, easy monetary policies continue to support growth. However, risks remain elevated, said Tobias Adrian, Financial Counsellor and Director of the IMF's Monetary and Capital Markets Department. According to Tobias Adrian, the latest Global Financial Stability Report finds that short-term risks to the financial system have increased somewhat over the past six months. Trade tensions have escalated, policy uncertainties have increased in a number of countries, and some emerging market economies are facing financial market pressures, Caspian Energy News (www.caspianenergy.net) reports with reference to the official website of the International Monetary Fund (IMF).

“To be sure, the financial system is stronger today than before the global financial crisis, thanks to a decade of reform and recovery. However, vulnerabilities continue to build, and the new financial system remains untested. Additional steps are needed to improve its resilience”, he added.

If pressures on emerging market economies were to broaden and intensify, financial stability risks would increase significantly, Tobias Adrian said. “Our analysis suggests that—in the medium term—there is a 5 percent probability that emerging market economies will experience portfolio debt outflows of $100 billion or more. That is broadly similar in magnitude to outflows experienced during the crisis”, he added.

“There are other ways stability risks could rise sharply. These include a broader escalation of trade tensions, a no-deal Brexit, renewed concerns about fiscal policy in some highly indebted euro area countries, and a faster-than-expected normalization of monetary policy in advanced economies”, Tobias Adrian said.

According to Tobias Adrian, any of these concerns could expose the financial vulnerabilities that have grown over years of accommodative monetary policy. In economies with globally systemically important financial sectors, debt owed by governments, companies, and households has risen from around 200 percent of GDP a decade ago to almost 250 percent today. Emerging market economies are borrowing more in international markets and face the risk that they will be unable to refinance a substantial portion of their foreign currency debt. Banks are exposed to these highly indebted borrowers, and some global banks have large holdings of more illiquid and opaque assets. Asset valuations remain stretched across several sectors and regions, and underwriting standards are deteriorating.

More details: https://blogs.imf.org/2018/10/09/the-financial-system-is-stronger-but-new-vulnerabilities-have-emerged-in-the-decade-since-the-crisis/

Person in charge of the newsline: Olga Nagiyeva 

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