Financial stability worsens and emerging countries are more at risk, says IMF

The IMF (International Monetary Fund) warned that the risks linked to global financial stability have increased, and that emerging countries, such as Brazil, are more at risk, because lending money abroad has become more difficult.

In the document, the IMF warned that risks have increased since the first half of the year, which leaves the balance sheet significantly distorted to the downside. “The global environment is fragile with storm clouds on the horizon,” the Fund said in its Global Financial Stability report, released on Tuesday.

Lack of liquidity, persistent inflation and continued efforts by central banks around the world to raise interest rates have combined to create a volatile and risky environment, the Fund points out.

China’s slowdown and ongoing tensions over Russia’s invasion of Ukraine have also increased the risk of a sharp downturn, to levels not seen since the start of the Covid-19 pandemic.

“Emerging markets face a multitude of risks, stemming from high foreign borrowing costs, persistently high inflation, volatile commodity markets, high uncertainty about the global economic outlook and tightening policy pressures. [monetárias] in developed economies,” the report says.

The rise in interest rates in the US and other developed countries seeks to attract investors to these countries. Consequently, this can reduce investments made in poorer and more unstable regions, such as Latin America.

“With investors aggressively moving away from risk-taking as they reassess their economic and monetary policy outlook, there is a danger of disorderly re-pricing of risk,” the report said. “In particular, volatility and a sudden tightening of financial conditions can be amplified by pre-existing financial vulnerabilities.”

The IMF also warned that credit spreads have widened substantially in the corporate sector and that higher interest rates could negatively affect property markets.

In response to this scenario, the Fund recommends that central banks act “decisively” to control inflation and clearly communicate their “unwavering commitment” to deliver.

Monetary policymakers also need to address persistent financial vulnerabilities to ensure sufficient market liquidity and minimize the risks of severe and disorderly liquidation. Financial regulators should closely monitor the trading infrastructure and increase the data available to traders to help keep markets running smoothly.

This week, the IMF holds meetings in Washington and publishes several studies. For the Fund, Brazil’s economy should grow this year below the global average, the average for Latin America and the average for developing countries. According to projections, Brazil should see its GDP (gross domestic product) grow by 2.8% in 2022, while the world should register an average growth of 3.2%.