Russia-Ukraine war has increased global financial stability risks, warns IMF

Emerging and frontier markets are facing tighter financial conditions and "a higher probability of portfolio outflows," the IMF report has warned.

Washington: Financial stability risks have risen along many dimensions, although no global systemic event affecting financial institutions or markets has materialized so far, the International Monetary Fund (IMF) has said.

"Global financial conditions have tightened notably" and downside risks to the economic outlook have increased as a result of the Russian-Ukraine war, according to the newly released Global Financial Stability Report (GFSR).

The tightening has been "particularly pronounced" in eastern Europe and Middle East countries with close ties to Russia, reflecting lower equity valuations and higher funding costs, the IMF report was quoted as saying by Xinhua news agency.

Emerging and frontier markets are facing tighter financial conditions and "a higher probability of portfolio outflows," with a forecast of 30 per cent now, up from 20 per cent in the October 2021 GFSR.

The latest report warned that a sudden repricing of risk resulting from an intensification of the war and associated escalation of sanctions may expose, and interact with, some of the vulnerabilities built up during the pandemic, leading to a sharp decline in asset prices.