IMF Warns of Risks Threatening Global Financial Stability

Kuala Lumpur, October 13 (KUNA) -- The International Monetary Fund (IMF) warned on Tuesday of three major risks threatening global financial stability, emphasizing that the simultaneous occurrence of these risks could trigger widespread financial disruptions, despite the continued resilience of global markets. This warning came in the IMF’s Global Financial Stability Report, titled “Resilience, Risks, and Transformation,” which was presented at a press conference held in Bangkok, the capital of Thailand, on the sidelines of the IMF and World Bank Annual Meetings.

The report identified the risks as the potential slowdown in artificial intelligence (AI) investments, a sharp rise in government bond yields, and major cyberattacks. It added that financial risks remain elevated due to growing reliance on borrowing, rising government debt, and increasing interconnectedness among financial institutions and investors. The IMF warned that a slowdown in AI investments or the failure to realize expected profits could lead to a sharp decline in technology company stocks, with losses spilling over into bond markets and financial institutions, given the sector’s increasing dependence on borrowed funding.

The report revealed that large technology companies developing AI infrastructure now account for nearly 10 percent of global investment-grade corporate bond issuances, compared to less than 1 percent in 2024, reflecting the sector’s growing reliance on debt markets.

Speaking at the press conference, Athanasios Vamvakidis, Deputy Director of the IMF’s Monetary and Capital Markets Department, noted that the rest of the world’s exposure to U.S. assets, particularly those linked to AI, has reached unprecedented levels. He warned that any significant drop in their value could have wide-ranging repercussions for global markets.

Regarding the second source of risk, the IMF cautioned that rising energy prices, inflationary pressures, and increasing public debt could trigger sudden spikes in government bond yields. This would raise borrowing and debt-refinancing costs, putting pressure on governments and financial institutions. While bond markets have so far absorbed these pressures without widespread disruptions, the IMF warned that underlying vulnerabilities could worsen in the event of new shocks.

On the third risk, the report disclosed that software developers had insufficient time to address security vulnerabilities before they were exploited in more than 70 percent of observed cases in 2026, a 20-percentage-point increase from the previous year. It noted that targeting a major financial institution or a critical technology service provider could disrupt financial transactions and rapidly transmit disturbances to other institutions and markets, with cyberattacks growing more complex due to advances in AI technologies.

In its assessment of the banking sector, the IMF confirmed that global banks generally maintain strong capital levels. However, stress tests indicated that banks representing 22 percent of total global banking assets could face capital shortfalls under a severely adverse economic scenario, compared to 18 percent in the 2025 tests.

The report’s second chapter examined risks associated with the expansion of hedge fund activities, whose total assets reached approximately $13 trillion, while their total notional exposures approached $40 trillion. The IMF warned that their reliance on borrowing and simultaneous selling could exacerbate market disruptions.

Chapter III also addressed the tokenization of financial assets, which involves representing assets digitally to facilitate their trading and settlement. It noted that this technology could reduce costs and accelerate transactions, but it also creates new risks related to liquidity and the transmission of shocks among financial institutions. The Fund called on governments and regulatory authorities to strengthen oversight of non-bank financial institutions, borrowing risks, and bond markets, and to enhance the protection of financial systems against cyberattacks, while taking measures to bring public debt back to sustainable levels. Bangkok will host the annual meetings of the International Monetary Fund and the World Bank Group from October 12 to 18, with broad Kuwaiti and international participation comprising thousands of financial officials and economists to discuss global economic and financial challenges and ways to enhance monetary and investment cooperation. (End) A.A.B./F.D.S.