IMF Chief Warns Of Rising Threats To Financial Stability

Kristalina Georgieva, the Chief of the International Monetary Fund(IMF), warned on Sunday that risks to financial stability had increased and emphasized the need for vigilance in light of the recent turmoil in the banking sector.

Speaking at a forum in Beijing, IMF managing director Christine Lagarde predicted that 2023 would be another challenging year, with global growth slowing to less than 3.0 percent due to the Ukraine conflict, monetary tightening, and scarring from the pandemic.

“Uncertainties are exceptionally high”, IMF Chief said at the China Development Forum, with the global economy likely to remain weak in the medium term.

She further said, “It is also clear that financial stability risks have increased”.

“At a time of higher debt levels, the rapid transition from a prolonged period of low-interest rates to much higher rates – necessary to combat inflation – inevitably generates stresses and vulnerabilities, as recent developments in the banking sector in some advanced economies have demonstrated”, she added.

Kristalina Georgieva’s remarks came after the financial sector was rocked by the failure of Silicon Valley Bank and the forced takeover of Swiss bank Credit Suisse by rival UBS, raising concerns about contagion.

Bank shares fell on Friday as investor concerns about the financial sector resurfaced, with German Chancellor Olaf Scholz forced to reassure investors about Deutsche Bank after the long-struggling lender became a focus of investor concern.

According to Georgieva, policymakers acted decisively in response to financial stability risks.

“These actions have alleviated some market stress, but uncertainty remains high, emphasizing the need for vigilance”, IMF Chief added.

The IMF chief, on the other hand, highlighted China’s recovery as a bright spot for the global economy.

The IMF expects China’s economy to grow 5.2 percent this year, driven by a rebound in private consumption as the country reopens after its pandemic isolation.

IMF Chief further said, “With the robust rebound, China is set to account for roughly one-third of global growth in 2023, providing a welcome boost to the global economy”.

“On average, a 1.0 percentage point increase in GDP growth in China leads to a 0.3 percentage point increase in growth in other Asian economies — a welcome boost”, she added.

Georgieva urged China’s policymakers to pursue higher productivity and rebalance the economy away from investment and towards more long-term consumption-driven growth.

“Market-oriented reforms to level the playing field between private and state-owned enterprises, combined with education investments, would significantly boost the economy’s productive capacity,” she added.

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