The IMF said the approval and rollout of vaccines has boosted expectations of a global recovery and lifted risk asset prices, despite rising COVID-19 cases and persistent uncertainties surrounding the economic outlook on Wednesday (January 27).
The Global Financial Stability Report also said that banks have endured the Covid-19 downturn so far, learning lessons from the 2008 global financial crisis.
“We have spent the last decade reforming the regulations of the banks. They went into the crisis with a lot of capital, a lot of liquidity. And even though we saw a very, very sharp economic contraction, the support on the monetary side and the fiscal side has contained the bankruptcy so far. So, the banks are in good shape. So that is extremely important from a financial stability point of view,” said Tobias Adrian, Director of the Monetary and Capital Markets Department at the International Monetary Fund.
The report also highlights that uneven vaccine distribution and unsynchronized recovery could risk capital flows to emerging market economies, especially if advanced economies were to begin to normalize policy, and some countries could face daunting challenges.
“Uneven distribution of vaccine creates this risk of asynchronous recovery. So, there's a health situation for first of all, there needs to be addressed as a safety issue. There's also an issue in terms of recovery. So, if you get this asynchronous recovery out of this country lags behind, they could lose market access, financial condition may tighten. And then you would see really an increase in in poverty. You could see an increase in inequality. So that's why it's important that we tackle this as a global issue at the global level, and there is an equitable, even distribution of vaccine across the globe. That's priority number one,” said Fabio Natalucci, Deputy Director of the Monetary and Capital Markets Department.
Adrian advised decision makers to take advantage of the easy financing conditions presented by the COVID-19 pandemic to prepare for an uncertain future.
“It is very important for countries to take into account that there could be volatility and capital flows at some point going forward. So, use the good times to look forward to potentially turbulent times at some point,” said Adrian.
He also added that governments should not pull the plug on monetary and fiscal support as it is vital to lessen lingering uncertainties, build a bridge to the recovery, and ensure financial stability.
“Until we are out of this pandemic, until the medical issues have been solved, we certainly advise our membership to continue the substantial monetary and fiscal support,” said Adrian.
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