IMF sees risks to global financial stability this year

- World economy will expand by just 3% this year

- Rising borrowing costs, Ukraine will hit growth

London: International Monetary Fund (IMF) chief Kristalina Georgieva has warned that the global economy faces risks to its financial stability because of the turbulence in the banking sector. Georgieva said rising interest rates had put pressure on debts, leading to stresses in leading economies, including among lenders, according to media reports.

She said the world economy would expand by just three per cent in this year as rising borrowing costs, combined with the war in Ukraine and scarring from the Covid-19 pandemic, would suffocate growth.

Adding to a growing chorus of warnings from economic leaders, the IMF chief said it was clear that risks to financial stability had increased after the recent collapse of Silicon Valley Bank and the Swiss-government brokered rescue of Credit Suisse by UBS.

“At a time of higher debt levels, the rapid transition from a prolonged period of low interest rates to much higher rates - necessary to fight inflation - inevitably generates stresses and vulnerabilities, as evidenced by recent developments in the banking sector in some advanced economies,” Guardian newspaper quoted Georgieva as saying at a conference in Beijing.

Her stark comments came as the European Central Bank (ECB) said the recent turmoil in banking would have a real-world impact on business and growth.

The EU central bank fears problems in the banking sector will result in lower growth and dampen inflation, the ECB vice-president, Luis de Guindos, said in a recent interview.

At a time of higher debt levels, the rapid transition from a prolonged period of low interest rates to much higher rates, necessary to fight inflation, inevitably generates stresses and vulnerabilities, as evidenced by recent developments in the banking sector in some advanced economies

-Kristalina Georgieva, MD, IMF