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October 5, 2010    

IMF expresses concern over fragile financial system

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by Kay Murchie

In its half-yearly health assessment of the financial system, the International Monetary Fund (IMF) has said it is concerned about the global financial system.

The crisis in the European sovereign debt markets has meant the prospects for global stability have been pushed back, said the IMF.

The crisis is Europe has recently been exacerbated by the problems in Ireland - although both have taken action to prevent the crisis from worsening.

In its report, the IMF said the financial system remains the “Achilles Heel” of global economic recovery.

However, on a positive note, the Washington-based fund said banks have been making progress in strengthening their financial foundations.

It did highlight, though, that the “fragile” situation will mean that “some of the public support that has been given to banks in recent years will have to be continued.”

It added: “Planned exit strategies from unconventional monetary and financial policies may need to be delayed until the situation is more robust.”

In the meantime, it also warned that in many major economies, the deficits will actually be larger than last year despite introducing tough austerity measures to reduce them.

According to the IMF, the average deficit for advanced economies will be 8.25% of GDP this year, against 9% in 2009.

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