The International Monetary Fund (IMF) has just launched its latest Global Financial Stability Report, “Meeting New Challenges to Stability and Building a Safer System”.
The global financial system and the world economy are slowly regaining their health, thanks in large part to unprecedented interventions by governments, but the sharp rise in government debt during the economic crisis from already elevated levels helped create what the IMF says is the newest threat to the financial system: growing sovereign risk.
The report issues the following key warnings:
-The health of the global financial system has improved as the economic recovery has gained steam, but stability risks remain high.
-Advanced country sovereign risks could undermine stability gains and take the credit crisis into a new phase.
-Policies are needed to reduce sovereign risks through well designed fiscal consolidation strategies; to clean up the crisis legacy, and to facilitate a smooth de-leveraging process by ensuring that a core of healthy, viable banks is able to support credit.
-Looking ahead, we need to decisively move forward the regulatory agenda and complete the transition to a safer, more resilient and dynamic global financial system.
Access the full report here.