Global Financial Stability Report 2019

Relevance” Prelims: Economy

Why in News?

The International Monetary Fund (IMF) released the Global Financial Stability Report (GFSR) is a semiannual report. The April 2019 Global Financial Stability Report (GFSR) finds that despite significant variability over the past two quarters, financial conditions remain favourable

What is the Global Financial Stability Report?

The Global Financial Stability Report (GFSR) is a semiannual report by the International Monetary Fund (IMF) that assesses the stability of global financial markets and emerging-market financing. It is released twice per year, in April and October.

The GFSR focuses on current conditions, especially financial and structural imbalances, that could risk an upset in global financial stability and access to financing by emerging-market countries.

It emphasizes the ramifications of financial and economic imbalances that are highlighted in one of the IMF’s other publications, the World Economic Outlook.

Topics covered in the GFSR usually include systemic risk assessments in worldwide financial markets, worldwide debt management, emerging economic markets and current economic crises that could affect finances worldwide.

Understanding the Global Financial Stability Report (GFSR)

The Global Financial Stability Report (GFSR) replaced two previous reports by the IMF, the annual International Capital Markets Report and the quarterly Emerging Market Financing Report.

The purpose of replacing them was to provide a more frequent assessment of the worldwide financial markets and to focus on emerging market financing in a global context.

In addition to assessing the condition of worldwide markets, the GSFR also issues recommendations for central banks, policymakers and others who supervise global financial markets.

Highlights:

•  The report specifically focuses on corporate sector debt in advanced economies, the sovereign–financial sector nexus in the Euro area, China’s financial imbalances, volatile portfolio flows to emerging markets, and downside risks to the housing market.
•  It recommends action by policymakers, including through the clear communication of any changes in their monetary policy outlook, the deployment and expansion of macroprudential tools, the stepping up of measures to repair public and private sector balance sheets, and the strengthening of emerging market resilience to foreign portfolio outflows.
•  There is high stock of non-performing assets (NPAs) in India. Portfolio flows to emerging markets are influenced by benchmark-driven investors — 70% of country allocations of investment funds are impacted by benchmark indices
•  China is likely to become more important for other emerging markets as it gets included in benchmark indices. Portfolio flows to China are expected to increase by $150 billion by 2020 due to its inclusion in a global bond index.

GFSR Report:

• The GFSR provides an assessment of balance sheet vulnerabilities across financial and non-financial sectors in advanced and emerging market economies.
•  It is released twice per year, in April and October.
•  It draws out the financial ramifications of economic imbalances highlighted by the IMF’s/World Economic Outlook.
•  The GFSR issues recommendations for central banks, policymakers and others who supervise global financial markets.
• The latest GFSR introduces a way to quantify vulnerabilities in the financial system, encompassing six sectors: corporates, households, governments, banks, insurance companies, and other financial institutions.

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