Financial woes continue to dog the global economic recovery, the IMF said today, as it warned about 'considerable uncertainty' ahead.
Over two years after the collapse of Lehman Brothers, the International Monetary Fund said the financial system was still the 'Achilles' heel of the economic recovery.'
In a report published before finance chiefs from around the world gather in Washington from Friday, the fund warned that government budgets remained 'highly vulnerable to growth shocks' and the banking system was still vulnerable.
Particularly at risk are the richest regions - Europe, Japan and the US - while emerging markets remain 'very resilient.'
'Policymakers in many advanced countries will need to confront the interactions created by slow growth, rising sovereign indebtedness, and still-fragile financial institutions,' the report said.
While the European debt crisis had eased slightly in recent months, the IMF said 'sovereign risks remain elevated as markets continue to focus on high public debt burdens.'
'Pockets of vulnerability' remain in the US financial system and Japan faced the longer-term risk of of a debt crunch as an aging population no longer props up Japanese bonds.
In the private sector, the IMF warned around $4 trillion in bank debt will need to be rolled over in the next 24 months, prompting a call for government support for the sector to be phased out gradually.
'Exits from extraordinary financial system support, including the removal of government guarantees of bank debt, will have to be carefully sequenced and planned,' the bank said.
