According to the International Monetary Fund, as the world economy deals with the effects of the coronavirus pandemic and Russia’s invasion of Ukraine, the chances of the collapse of the global financial system have increased to levels only witnessed during previous crises.
The Washington-based group advised central banks to carefully and precisely calibrate their essential efforts to lower sky-high inflation on Tuesday. Highlighting the risk of abrupt, disorderly decreases in the price of stocks and other assets.
In the foreword to the most recent Global Financial Stability Report from the Fund. IMF Financial Counsellor Tobias Adrian stated that “The global situation is precarious.” The balance of risks is weighted toward the downside and financial stability threats have worsened
In fact, the IMF did foresee a worsening picture for the overall state of the world economy on Tuesday. Highlighting the possibility that efforts to contain the worst inflation in history. May exacerbate the harm caused by the conflict in the Ukraine and China’s slowdown.
Risks for Emerging Countries.
As investors deal with a climate of high inflation and strong central bank tightening not seen in decades. Financial markets are highly volatile and less liquid, according to the IMF. As interest rates rise, concerns about a global recession and the threat of debt defaults is growing.
The IMF stated that there are many risks for emerging countri. Including the strength of the dollar, high borrowing costs, persistently high inflation, and erratic commodity markets.
According to IMF stress testing, up to 29% percent emerging market banks could fall short of capital requirements in a grim scenario that included a revival of the epidemic.
According to the Fund, several frontier markets may experience defaults and challenging debt restructurings, and poorer nations are under intense strain.
The IMF determines that more than half including all low-income nations are already in debt trouble or are likely to do so soon.
According to a Report, The likelihood of major drops in home prices across a number of nations is growing as a result of recent high price increases.
The IMF suggested that the real estate markets may have reached a tipping point by saying. That “soaring borrowing costs and poor lending requirements. Coupled with stretched housing valuations, might lead to a significant decrease in house prices.”
According to estimations by the loan agency, under a dire scenario, house values in rich economies might decline by more than 10% over the next 3 years while those in emerging markets may plummet by nearly 25%.