Baku, Azerbaijan, Apr. 14
By Azad Hasanli - Trend:
Emerging market economies generally have the tools to boost their resilience and counter the effects of lower commodity prices and the slowdown in growth and capital flows, according to the new Global Financial Stability Report by the International Monetary Fund (IMF).
"Emerging market economies are faced with a difficult combination of slower growth, weaker commodity prices, and tighter credit conditions, amid more volatile portfolio flows," the report said. "This mixture has kept financial and economic risks elevated. So far, many economies have shown remarkable resilience to this more difficult domestic and external environment, as policymakers have made judicious use of buffers in strengthened policy frameworks."
Commodity-related firms are cutting capital expenditures sharply as high private debt burdens
reinforce risks to credit and banks, according to the IMF analysts.
"Commodity exporting countries and those in the Middle East and the Caucasus are particularly exposed to strains across the real economy and the financial sector," according to the fund's experts. "The nexus between state-owned enterprises (SOEs) and sovereigns has intensified, and could increase fiscal and financial stability risks in countries with repayment pressures."
"More broadly, debts belonging to nonfinancial corporations with reduced ability to repay have risen to $650 billion, or 12 percent of total corporate debt of listed firms considered in this report," the IMF experts said.
Bank capital buffers are generally adequate, but will likely be tested by weaker earnings and the downturn in the credit cycle, according to the report.
"Authorities in emerging market economies should continue to use their buffers and policy space, where available, to smooth adjustment and strengthen sovereign and bank balance sheets," said the report. "This includes using external buffers, fiscal and monetary policy, and macroprudential and supervisory frameworks, among other tools. Countries with insufficient buffers and limited policy space should act early by adjusting macroeconomic policies to address their vulnerabilities, including by seeking external support."
Risks to global financial stability have increased since the October 2015 Global Financial Stability Report, according to the fund's analysts.
"In advanced economies, the outlook has deteriorated because of heightened uncertainty and setbacks to growth and confidence," according to the report. "Disruptions to global asset markets have added to these pressures. Declines in oil and commodity prices have kept risks elevated in emerging market economies, while greater uncertainty about China's growth transition has increased spillovers to global markets. These developments tightened financial conditions, reduced risk appetite, raised credit risks, and stymied balance sheet repair, undermining financial stability."