Global Financial Stability Report 2020

The International Monetary Fund (IMF) releases the Global Financial Stability Report twice in a year — April and October. The latest report was published on 23rd October 2020. The Global Financial Stability Report focuses on the financial ramifications of the economic issues that are highlighted in the IMF’s World Economic Outlook Report.

In this article, aspirants preparing for the IAS Exam 2022, will get the relevant information about the Global Financial Stability Report 2020 that is important for both prelims and mains examinations.

There is a difference between the Global Financial Stability Report and Financial Stability Report. While the former is released by IMF; latter is released by the Reserve Bank of India.

What is the Global Financial Stability Report?

It is a survey conducted by the IMF and published semi-annually. The main key topics that are covered in the report are:

1. Global Financial Stability
2. Emerging and frontier markets
3. Corporate funding
4. Bank capital
5. Corporate sustainability

What does the Global Financial Stability Report 2020 talk about?

The Global Financial Stability Report published in October 2020 (Bridge to Recovery) figures out:

1. Key market developments
2. A forward-looking analysis of banks, NBFCs (Non-banking financial institutions), non-financial firms
3. Emerging market capital flows
4. Assessment of economic policies
5. Impact of novel COVID-19 pandemic on the economic performance
6. Importance of climate policies and green investment packages to support green recovery and transition to a low-carbon economy

Findings of the Global Financial Stability Report (October 2020)

1. Timely policy response helped to contain the near-term global financial stability risks.
2. Nonfinancial corporate sectors are witnessing the financial vulnerabilities – Due to an increase in the debt-borrowing to meet the cash shortages.
3. Fiscal deficit has widened in many countries.
4. Risk of small and medium-sized enterprises to fall into insolvency if the economic recovery gets delayed.
5. Debt-distress is a challenge to many emerging economies.
6. Focus on post-pandemic financial reform agenda non-financial sectors:
   • Risk-taking in the lower-for-longer interest-rate environment to be contained with effective prudential measures
7. Steps to be taken when the pandemic is under control:
   • Gradually withdrawing liquidity support
   • Banks to implement credit provisions to rebuild capital and liquidity buffers.
   • Recapitalization, restructure or resolve of nonviable firms.
   • Digitalization
   • Focus on green investments
8. Central banks of many emerging markets for the first time used asset purchases to mitigate stress in local bonds and currency markets.
9. The Local Stress Index (LSI) was released with a Global financial stability report that measures the stress in local bonds and currency markets.
10. G7 countries witnessed a surge in borrowings in the non-financial corporate sector which was supported by the unprecedented policies’ interventions.
11. The pandemic can pose risks to banks’ capital adequacy if it is long-lasting.

Global Financial Stability Report 2020 – UPSC Notes:-Download PDF Here

The candidates can learn about Capital Markets, recapitalization and other related topics from the links below: