The International Monetary Fund (IMF) has warned that fallout from distressed private credit on Wall Street could spread to emerging market financial systems.
On Monday, the IMF released key findings from its Global Financial Stability Report (GFSR), scheduled for official publication on April 14, stating that "private credit has expanded rapidly in emerging markets, with assets under management growing fivefold over the past decade."
The IMF said private credit assets in emerging markets currently range between $50 billion and $100 billion, adding that "low information transparency and limited available data in these markets may make it difficult to quickly identify potential risks."
According to the IMF, capital inflows to emerging markets have increased eightfold since the global financial crisis, now totaling approximately $4 trillion. The fund noted that "debt-type investments including private credit as a share of emerging market investment has risen from about 9% of GDP in 2006 to approximately 15% currently," and that "80% of this capital has been provided by non-bank financial institutions such as hedge funds, pension funds, and insurers—a ratio that has roughly doubled over the past 20 years."
The IMF warned that "these institutions often use leverage to amplify returns in emerging markets, meaning they may be forced to sell assets quickly if sudden redemption pressures arise."