The IMF's boss has called for vigilance as risks to financial stability rise after bank turmoil

• IMF chief Kristalina Georgieva has warned of another tough year ahead for the world economy, amid increased risks to financial stability.
• The comments follow weeks of global banking turmoil, which saw the failure of Silicon Valley Bank and the rescue of Credit Suisse.

International Monetary Fund chief Kristalina Georgieva has warned 2023 will prove another challenging year for the global economy, with the recent banking turmoil underscoring heightened risks to financial stability.

The rapid rise in interest rates, combined with elevated debt levels, "inevitably generates stresses and vulnerabilities," she said at the 2023 China Development Forum in Beijing on Sunday, according to a transcript of her speech published on the IMF website.

"Uncertainty is high which underscores the need for vigilance," Georgieva said.

Recent weeks have been a tumultuous period for the global banking sector, which saw a run of shocking lender failures from Silicon Valley Bank, Signature Bank and Silvergate Capital in the US to the 167-year-old Credit Suisse in Europe.

"It is also clear that risks to financial stability have increased. 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," Georgieva said.

Global growth will likely slow below 3% this year, compared with a historic average of 3.8%, as the damaging effects of the pandemic, the war in Ukraine and the past year's monetary tightening weigh on economic activity, according to the IMF chief. Geopolitical risks also could undermine the world economy, she added.

"Uncertainties are exceptionally high, including because of risks of geo-economic fragmentation which could mean a world split into rival economic blocs," she said, adding that such divisions could make everyone poorer and less secure.

Authorities in the US and in Europe have taken action in recent weeks to soothe fears about a banking crisis. American regulators stepped in to guarantee all deposits with the SVB when it collapsed, and the Federal Reserve has set up an emergency loan program to make sure banks aren't squeezed for cash to meet demands.

"Policymakers have acted decisively in response to financial stability risks, and advanced economy central banks have enhanced the provision of U.S. dollar liquidity. These actions have eased market stress to some extent, but uncertainty is high which underscores the need for vigilance."