Home/ News / World/  IMF Chief urges vigilance as risks to financial stability mount

Kristalina Georgieva, the chief of the International Monetary Fund (IMF) cautioned that financial stability risks had risen and emphasized the necessity of being watchful following the recent banking sector turmoil, as reported by AFP.

During a forum in Beijing, the IMF managing director predicted that 2023 would be another difficult year, with global growth expected to dip below 3.0 % due to various factors, including the conflict in Ukraine, tightening monetary policies, and the long-term effects of the COVID-19 pandemic.

"Uncertainties are exceptionally high," with the outlook for the global economy likely to remain weak over the medium term, she told the China Development Forum.

"It is also clear that risks to financial stability have increased," she added.

"At a time of higher debt levels, the rapid transition from a prolonged period of low-interest rates too much higher rates -- necessary to fight inflation -- inevitably generates stresses and vulnerabilities, as evidenced by recent developments in the banking sector in some advanced economies."

Her remarks come after Silicon Valley Bank's collapse and the enforced takeover of Credit Suisse by UBS, which sparked fears of contagion.

Kristalina Georgieva expressed concerns about the increased risks to financial stability.

On Friday, bank shares plummeted, and investor worries resurfaced about the financial sector's health, with Deutsche Bank becoming a focus of concern. German Chancellor Olaf Scholz had to offer reassurances about the long-troubled lender to assuage investor concerns.

Georgieva said policymakers had acted decisively in response to financial stability risks.

"These actions have eased market stress to some extent, but uncertainty is high which underscores the need for vigilance," she said.

Georgieva pointed to China's economic rebound as a positive development.

The IMF predicts that China's economy will expand by 5.2 % in 2023, with private consumption rebounding as the country reopens after its pandemic-related isolation.

"The robust rebound means China is set to account for around one-third of global growth in 2023 -- giving a welcome lift to the world economy. A 1.0 percentage point increase in GDP growth in China leads to a 0.3% point increase in growth in other Asian economies, on average -- a welcome boost," she said.

IMF chief further encouraged China's policymakers to prioritize boosting productivity and to shift the country's economy away from investment and towards a more sustainable, consumption-driven growth model.

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Updated: 26 Mar 2023, 05:12 PM IST
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