London, March 27,2023: International Monetary Fund (IMF) chief Kristalina Georgieva has warned that the global economy faces risks to its financial stability because of the turbulence in the banking sector.

Georgieva said rising interest rates had put pressure on debts, leading to “stresses” in leading economies, including among lenders, the Guardian reported.

She said the world economy would expand by just 3 per cent in this year as rising borrowing costs, combined with the war in Ukraine and scarring from the Covid-19 pandemic, would suffocate growth.

Adding to a growing chorus of warnings from economic leaders, the IMF chief said it was clear that risks to financial stability had increased after the recent collapse of Silicon Valley Bank and the Swiss-government brokered rescue of Credit Suisse by UBS.

Investors will be watching shares in Deutsche Bank when European markets reopen on Monday after they led the sell-off in banking stocks on Friday.

“At a time of higher debt levels, the rapid transition from a prolonged period of low interest rates to much higher rates — necessary to fight inflation — inevitably generates stresses and vulnerabilities, as evidenced by recent developments in the banking sector in some advanced economies,” the Guardian quoted Georgieva as saying at a conference in Beijing.

Her stark comments came as the European Central Bank (ECB) said the recent turmoil in banking would have a real-world impact on business and growth.

The EU central bank fears problems in the banking sector will result in lower growth and dampen inflation, the ECB vice-president, Luis de Guindos, said in an interview with Business Post.