The International Monetary Fund (IMF) warns of rising global debt risk

IMF warns of rising global debt risk

The International Monetary Fund (IMF) is concerned about the high level of global debt.

In a new report, the IMF said governments should capitalize on strong current economic growth to strengthen their financial position.

The International Organization warned that risks to global financial stability have increased.

Despite previous warnings, the fund has revealed that the banking sector has become more resilient since the global financial crisis.

Overall, the Economic Outlook report released on last week was optimistic in the near term.

However, he noted risks, some of which were detailed in two reports, one on the stability of the financial system and the other focusing particularly on government funding worldwide.

Future contraction

For governments, the IMF says "decisive action is needed now."He argues that by improving their finances when economic performance is strong, governments will have more room to use tax cuts or increase public spending to counter future deflation.

Immediate action means governments are unlikely to find it difficult to borrow the money they need when the economy weakens.

In a carefully selected language, the IMF has criticized the United States, with the Donald Trump administration initiating tax cuts at a time when the IMF sees the economy close to full employment, a drop in unemployment rates to the acceptable level.

The IMF believes it is necessary to "adjust the policy there (in the US) to ensure that the ratio of government debt to GDP falls in the medium term." This suggests that the United States must move in the opposite direction to what it is currently planning.There is also a warning about the risks of global financial instability. The warning is partly about high government debt, but not limited to it.

Rising inflation and central bank responses to rising interest rates could exacerbate debt problems and could affect the prices of financial assets.

Chinese banks

The IMF report carried a special warning on China. The nature of the vague and expansive financial system poses a threat to stability, the IMF says.

However, the report also notes that Chinese banks have reduced their use of risky short-term borrowing in response to stricter regulations.

The report also notes that the global banking system is stronger than it was at the time of the global financial crisis in 2008. But he stresses the need for continued reforms.

One encouraging point is the IMF's views on encoded assets, such as the currency of PeteChoen, which at present seem to pose no risk to financial stability. But can be dangerous if these assets become more widely used.

The technology behind these assets has the potential to make financial markets work more efficiently, the report says.