Apr 20, 2010

Excerpts from IMF Global Financial Stability Report

The IMF recently released on 20th Global Financial Stability Report. Few comments and excerpts from the reports:
                    IMF put stress on the need for the countries to take steps to revive credit growth. It expressed concerns over potential rising seriousness of Sovereign debts than the private sector sluggishness. It also mentioned that the global economy is on a revival path. It expressed further concerns by stating that the government balance sheets are becoming vulnerable and the risk and further vulnerabilities to the global economy is coming from this side. It acknowledged the deterioration of fiscal balances of countries. This is especially true when recently USA is already and was always in deep debt, it brought the subprime crisis while the ghosts of Greece crisis are not fading still and the countries are in queue like those of Spain, Poland, Italy, UK, France, Japan etc to bring up their debt problems when the time permits. All of these countries have their debt level around more than or equal to 90% of their GDP.
The IMF also commented that the Longer-run solvency concerns could translate into short-term strains in funding markets as investors require higher yields to compensate for future risks.
While the cost of insuring Greek sovereign debt against default surged to a record on 19th April since the debut of Euro currency in 1999.
The IMF report also said the main sources of sovereign risk in the 16-country euro region have shifted to reflect market concerns about fiscal sustainability. At the same time IMF mentioned that the US and European banks are safer than they were last year.
The IMF official said that the Government lenders also face problems and the reason is the debt-to-GDP ratio of the world’s advanced economies which is nearing the highest levels since World War-2.
The IMF report notably focused on the recent problems faced for short term financing for banks and governments alike.
One of the strongest writing of the report was the mention of IMF that the emerging markets such as Asia, and Latin America. This attraction is due to strong growth prospects, appreciating currencies, and rising asset prices, lower interest rates are attracting capital flows in competition to developed economies.
The other noticeable point of the IMF report was the concern about excesses in real estate markets especially China.