The International Monetary Fund (IMF) warns that increased inflation and interest rates are putting the world financial system to the test and implores banks to keep more capital and liquid assets to help them withstand shocks.

In order to assist assure system resilience, the IMF encouraged banks to perform stress tests, which it mentioned in its April 2022 Global Financial Stability Report.

To control inflation, central banks all around the world have been raising their monetary policy rates (MPR).

According to the IMF, financial stability risks had increased rapidly since October 2022 as the resilience of the global financial system faced a number of tests.

“The failures of Silicon Valley Bank and Signature Bank of New York and the loss of confidence in Credit Suisse are powerful reminders of the challenges posed by the interaction between tighter monetary and financial conditions and the build-up in vulnerabilities since the global financial crisis.

“If financial strains intensify significantly and threaten the health of the financial system amid high inflation, trade-offs between inflation and financial stability objectives may emerge,” the Fund stated.

It expressed that while the banking turmoil had raised financial stability risks, its roots were fundamentally different from those of the global financial crisis of 2008.

“The recent turmoil is different. The banking system has much more capital and funding to weather adverse shocks; off balance sheet entities have been unwound, and credit risks have been curbed by more stringent post-crisis regulations,” IMF said.

It identified a meeting between the steep and rapid rise in interest rates and fast-growing financial institutions as unprepared for the rise.

The IMF also trimmed its 2023 global growth outlook slightly as higher interest rates cooled activity, but warned that a severe flare-up of financial system turmoil could slash output to near recessionary levels.

“Our growth-at-risk metric, a measure of risks to global economic growth from financial instability, indicates about a 1-in-20 chance that world output could contract by 1.3 per cent over the next year.

There’s an equal probability that gross domestic product could shrink by 2.8 per cent in a severe tightening of financial conditions in which corporate and sovereign spreads widen, stock prices fall, and currencies weaken in most emerging economies.

“Faced with heightened risks to financial stability, policy makers must act resolutely to maintain trust,” the Fund added.“Faced with heightened risks to financial stability, policy makers must act resolutely to maintain trust,” the Fund added.“Faced with heightened risks to financial stability, policy makers must act resolutely to maintain trust,” the Fund added.

Nigeria’s debts rose by about N4 trillion in the past five months to take the portfolio to N45.25 trillion.

National Bureau of Statistics said weeks ago that the urban inflation rate stood at 20.95 percent, which is 3.36 percent higher compared to the 17.59 percent recorded in August 2021.

Added to these myriad of fiscal challenges is that Nigeria does not have the financial capacity to fund its next budget.

Because of these, Nigeria Employers’ Consultative Association, NECA, warned against more borrowings that will comatose the country.

In a statement in Abuja yesterday, NECA cautioned the Federal Government against further borrowing, contending that the nation is faced with acute and s,elf-inflicted revenue challenges and a rising debt profile, among many other economic headwinds.

They noted with dismay that even with the nation’s current level of indebtedness, the Government is still poised to borrow over N11 trillion to finance the 2023 national budget.

NECA stated: “Organized businesses have witnessed varied challenges in recent months. From shortage of FOREX, stringent regulatory environment to non-alignment of fiscal and monetary policies, which when combined makes doingthe business difficult.

“It is obvious to all discerning stakeholders that the nation is faced with acute and self-inflicted revenue challenges and a rising debt profile, among many others. Even with the nation’s current level of indebtedness, the Government is still poised to borrow over N11 trillion to finance the 2023 national budget.

“Currently, the Government had made a cumulative expenditure proposal of over N19 trillion in the 2023 national budget, a 15.4 percent increase over the 2022 estimate.

While it is necessary and critical to generate revenue to fund not only the 2023 national budget but also to liquidate the interests accruing on the debts, Government will do well not to further burden the Real sector with additional taxes and stringent regulatory environment”

It also has hinted that most businesses in Nigeria are now on the brink of collapse under the pressures from the economic policy environment.

The organization lamented that at the last count, organized businesses are presently faced with over fifty different taxes, levies and fees at all tiers of government, some of which are duplicated.