Risks to financial stability increased; vigilance needed: IMF

Beijing: The ongoing turmoil in the global banking sector has increased risks to financial stability, and there is a need to be vigilant, International Monetary Fund managing director Kristalina Georgieva said on Sunday, reports Agence France-Presse reported.

Addressing the China Development Forum here, she said that she expects 2023 to be another challenging year since global growth is slowing to under 3.0 per cent due to the war in Ukraine, monetary tightening and after-effects of the pandemic.

According to her, uncertainties are exceptionally high as the outlook of the global economy might remain weak over the medium term.

She said that at a time of higher debt levels, the rapid transition from a prolonged period of low-interest rates too much higher rates, which is necessary to restrict inflation, inevitably generates stresses and vulnerabilities. This was evident from the recent developments in the banking sector in some advanced economies, she said.

Georgieva’s comments come after the financial sector got shaking following the fall of Silicon Valley Bank and the Swiss bank Credit Suisse being forcibly taken over by rival UBS. On Friday, bank shares came down on fears that the health of the financial sector cropped up. German Chancellor Olaf Scholz was forced to give reassurances about Deutsche Bank after the long-troubled lender became a focus of investor concerns.

Though Georgieva believes that policymakers acted decisively in response to the financial stability risks, uncertainty is still there.

But she said that China has rebound was a bright spot for the world economy. China’s economy will grow 5.2 per cent this year, according to an IMF forecast.

Georgieva said that China’s robust rebound is set to account for one-third of global growth in 2023.

A 1.0 per cent point increase in GDP growth in the Chinese economy will lead to a 0.3 per cent point increase in growth in other Asian economies.