Washington – The International Monetary Fund (IMF) on Wednesday said global financial stability had continued to improve since October 2016, but warned that risks in highly-leveraged U.S. corporate sectors were looming.
The IMF in its latest Global Financial Stability Report said new threats to financial stability were emerging from elevated political and policy uncertainty around the globe.
“If the anticipated tax reforms and deregulation in the United States fail to deliver more growth than expected, risk premiums and volatility could rise sharply, undermining financial stability,’’ the IMF said.
According to the report, overall corporate leverage in the U.S. is elevated, leaving some segments vulnerable to higher financing costs.
It pointed out that cash-constrained sectors, such as energy, real estate and utilities, may be challenged to expand investment without resorting to further debt financing, in spite of the expected tax cuts.
The IMF also warned that high leverage combined with tighter borrowing conditions could affect financial stability in the United States.
“Protectionist policies could trigger capital outflows from emerging market economies and hurt growth prospects,’’ the IMF said.
It called for policymakers to adjust the policy mix to deliver a stronger path for long-term and inclusive growth while avoiding inward-looking policies.