Global Financial Stability Report 2024

Global Financial Stability Report 2024

• Released by- International Monetary Fund
• Publication- Semi-annual (Twice per year in April and October)
• Theme- The Last Mile: Financial Vulnerabilities and Risks.
• About- It provides an assessment of the global financial system and markets, and addresses emerging market financing in a global context.
• Focus- The report focuses on current market conditions, highlighting systemic issues that could pose a risk to financial stability and sustained market access by emerging market borrowers.
• Frequent assessment- It replaced two previous reports by the IMF, the annual International Capital Markets Report and the quarterly Emerging Market Financing Report.
• World Economic Outlook- The Report draws out the financial ramifications of economic imbalances highlighted by the IMF's World Economic Outlook.
• Chapters-
  • High Inflation
  • Unregulated credit market
  • Cyber-attack on financial institutions

Issues

Recommendations

• Investor optimism- The report warns the investor optimism about the end of high inflation and potential interest rate cuts by central banks may be premature as inflation has stalled in some economies.
• Geopolitical risks- Ongoing conflicts in West Asia and Ukraine could disrupt supply and keep prices high, preventing central banks from reducing rates soon.
• Market correction risks-If central banks do not act as investors expect, there could be a significant market correction, resulting in substantial losses for those who have invested in anticipation of rate cuts.

• Central banks should avoid easing monetary policy prematurely and push back against overly optimistic market expectations for rate cuts.
• In jurisdictions displaying ample evidence that inflation is moving sustainably toward target, policy should gradually move to a more neutral stance
• Emerging and frontier economies should strengthen efforts to contain debt vulnerabilities.
• Regulatory authorities should use supervisory tools to ensure that banks and nonbank financial institutions are resilient to the credit cycle downturn.

• Private credit market- The IMF is concerned about 2.1 trillion dollars unregulated private credit market where non-bank financial institutions lend to corporate borrowers, potentially affecting the broader financial system.
• Higher returns- The investors are drawn to the private credit market due to the potential for higher returns compared to traditional investments.
• Concerns of financial soundness- The IMF is concerned that many borrowers in the private credit market may not be financially robust, with some unable to cover even their interest costs.
• Benefits borrowers- Borrowers who may not have access to long-term funds through conventional channels find opportunities in the private credit market.

• Consider a more proactive supervisory and regulatory approach.
• Close data gaps and enhance reporting requirements to comprehensively assess risks.
• Strengthen cross-sectoral and cross-border regulatory cooperation

• Cyber risks- With growing digitalization, evolving technologies, and increasing geopolitical tensions, cyber incidents— especially those with malicious intent—are a rising concern for macro financial stability.
• Economic loss- Although most losses from cyberattacks are modest, the risk of extreme losses has been increasing

• Strengthen response and recovery procedures to boost resilience against cyber incidents.
• Enhance data reporting and information sharing.
• Develop national cybersecurity strategies and effective regulation and supervisory frameworks