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IMF warns of global financial instability

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The International Monetary Fund (IMF) has warned of risks developing in emerging economies which could have a detrimental impact on the rest of the world.

Presenting the organisation’s latest Global Financial Stability Report, senior IMF official Jose Vinals noted that while financial stability in advanced economies has improved, risk has moved towards emerging economies, such as China, Thailand, Turkey and Brazil.

According to a BBC report, emerging and developing economies are experiencing their fifth consecutive year of slowing economic growth, with the IMF estimating there is $3.3trn in ‘overborrowing’ at companies and banks within these economic regions.

The IMF also identified businesses with foreign currency debt as a concern, which could be hit by a strengthening dollar therefore making debts more expensive to repay in national currency terms.

The report looked at the impact of China’s recent economic turmoil and global financial markets’ exposure to this. Posing the question ‘can China avoid destabilising markets while achieving its objectives’, the report looked at how the country could ensure stability by focusing its economic growth on services and spending by Chinese consumers.

Vinals said: “Regarding financial stability we are not yet in a comfortable zone, it is not yet assured and while advanced economies are doing a little bit better, emerging market risks remain elevated. Risks in emerging markets are becoming more tangible and some are already starting to materialise. This is important given the critical role that emerging markets play in the global economy.”

Vinals added that there were three main challenges for increasing global financial stability, which is ‘not yet satisfactory’.

“One [challenge] is for advanced economies to deal with the remaining legacies of the crisis; the second for emerging markets to address some of the vulnerabilities that have accumulated in the last few years; and third to make sure that market liquidity is resilient,” he said.

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