IMF Warns Emerging Markets Against Debt Risks
…Recommends resolute action to tame inflation financial stability crisis
The International Monetary Fund (IMF) has warned emerging and frontier markets to reduce debt risk through early engagement with creditors, multilateral cooperation, and international support.
For countries already in distress, the 196-member global financial institution advised that bilateral and private sector creditors should coordinate on preemptive restructuring to avoid costly defaults and prolonged loss of market access.
In a report released on Tuesday, the Washington, United States based global lender expressed grave concern over rapid inflation ravaging global economies and urged central banks across the globe to act resolutely to bring inflation back to target and avoid a de-anchoring of inflation expectations, saying it would damage their credibility.
The report highlighted major issues facing financial systems including inflation at multi-decade highs, continuing deterioration of the economic outlooks in many regions, and persistent geopolitical risks.
It warned apex banks not to allow inflation to become entrenched, pointing out that rapid inflation ravaging economies which has pushed central banks to accelerate tightening of monetary policy conditions, could damage reputation and credibility of apex banks.
IMF recommended among other things that Central Bank of Nigeria and others should deploy clear communication of policy decisions, commitment to price stability, and possible further tightening to preserve credibility and avoid market volatility.
It also recommended foreign exchange interventions, especially in cases where exchange rate movements stoke broader financial stability risks, stressing that exchange rate flexibility could help countries adjust to the differential pace of monetary policy tightening.
“Policymakers face an unusually challenging financial stability environment. Though no globally systemic event has materialized so far, they should contain further buildup of vulnerabilities by adjusting selected macroprudential tools to tackle any pockets of risk,” IMF stated in its report.
It further pointed out that in this highly uncertain environment, striking a balance between containing these potential threats and avoiding a disorderly tightening of financial conditions will be critical.
Financial conditions have tightened as central banks continue to hike interest rates.
Amid the highly uncertain global environment risks to financial stability have increased substantially, the global lender concluded.
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