Monday April 12, 2021
IMF urges policymakers to tackle financial vulnerabilities
Published : 06 Apr 2021, 23:18
The International Monetary Fund (IMF) on Tuesday urged policymakers to tackle rising financial vulnerabilities amid an asynchronous and divergent global economic recovery, reported Xinhua.
While extraordinary policy measures have eased financial conditions and supported the global recovery from the COVID-19 pandemic, they may have "unintended consequences on stretched valuations and rising financial vulnerabilities," the IMF said in its latest Global Financial Stability Report released Tuesday.
"A repricing of risk in markets and the associated tightening in financial conditions - for example, due to a rapid and persistent increase in interest rates - may interact with such vulnerabilities, with repercussions for confidence and endangering macro-financial stability," the report said.
The report also warned that an asynchronous and divergent global economic recovery could result in tighter financial conditions and large portfolio outflows in emerging market economies, especially if accompanied by a move toward policy normalization in advanced economies and rapidly rising interest rates.
"Most emerging markets have large financing needs this year and are exposed to rollover risk, especially if domestic inflation rises or global long-term interest rates continue to rise. Countries with weaker positions or limited access to vaccines may also face portfolio outflows," the report said.
While ongoing policy support remains essential until a sustainable and inclusive recovery takes hold, policymakers should act swiftly to prevent financial vulnerabilities from becoming entrenched and turning into legacy problems, the report noted.
"They should tighten selected macroprudential policy tools to tackle pockets of elevated vulnerability while avoiding a broad tightening of financial conditions," the report said, adding rebuilding buffers in emerging markets should also be a priority to prepare for a possible repricing of risk and a reversal of capital flows.
In its latest World Economic Outlook released earlier Tuesday, the IMF projected that the global economy will grow by 6 percent in 2021, 0.5 percentage point above the January forecast.
"Recoveries are also diverging dangerously across and within countries, as economies with slower vaccine rollout, more limited policy support, and more reliant on tourism do less well," said IMF Chief Economist Gita Gopinath.