By Kemi Osukoya
MARKETS | AI
In the war rooms of modern finance, the battle is rarely about predicting the next shock—it is about surviving it. And for monetary policymakers and business leaders gathered at the International Monetary Fund Spring Meetings in Washington this week, the message from the Fund’s Director of Monetary and Capital Markets Tobias Adrian is unmistakably pragmatic: Resilience is built not on foresight, but on readiness.
“The task for policymakers is not in and of itself to predict shocks,” Adrian says, almost dismissing the idea of precision forecasting. “It’s very hard to know what shocks are going to come down but rather to ensure that vulnerabilities are contained, understood, and that actions can be taken if there are any instabilities that arise.”
That philosophy, practicality over prediction—runs through this year’s Global Financial Stability Report, arriving at a moment when financial markets are once again being tested by geopolitics. The war in the Middle East has introduced a new layer of uncertainty, but, for now, markets have held their ground. “The financial system has been resilient so far,” Adrian notes, pointing to volatility without disorder. “”he conflict has alternated between escalation and de-escalation, generating bouts of volatility, but not the kind of sustained draw-downs that we have seen in previous times of liquidity stress.”
There have been no cascading margin calls, no forced deleveraging spirals—at least not yet. Central banks, quietly, have done their part. “Central banks have been supporting markets in a number of countries through liquidity facilities,” he says, while structural reforms—from central clearing to post-crisis capital buffers—have reinforced the system’s shock absorbers. Banks, crucially, are not the weak link this time. “We also see the benefits of resilient banks, which remain well-capitalized and liquid, so the banking system is not a worry at this particular juncture.”
But resilience, the Fund cautions, is uneven—and increasingly fragile at the edges.
Across emerging markets, and particularly in parts of Africa, the fault lines are more visible. Capital flows have become more volatile, and their composition more precarious. “Quite a bit of the non-bank flows have dominated emerging market financing, and they can be subject to shifts in global risk appetite,” Adrian explains. When that appetite turns—as it often does in moments of geopolitical stress—the impact is felt first and hardest in markets with thinner buffers.
The early signs are already there. Since the start of the Iran war, “we do see a sort of outsized reaction in terms of capital flows, roughly twice as large as what we have seen during the Ukraine war,” Adrian says. Yet, tellingly, prices have not followed in equal measure. “The price action remains fairly contained… that really reflects a broader, healthy risk appetite in global markets.”
It is a precarious equilibrium: liquidity still flowing, but more fickle; confidence intact, but conditional.
For countries like Nigeria—fresh from a banking recapitalization drive, the test is whether recent reforms can hold under pressure. The IMF’s view is cautiously supportive. “Bank recapitalizations are very welcome and are paying off particularly under times of stress,” Adrian says, underscoring the importance of capital buffers not as a regulatory checkbox, but as a first line of defense when shocks hit.
Elsewhere on the continent, the pressures are more structural. Rising debt burdens, currency volatility and dependence on external financing continue to define the risk landscape. “Debt sustainability and the fiscal position are certainly very foundational,” Adrian notes, particularly in countries grappling with elevated debt-to-GDP ratios. The implication is clear: resilience in emerging markets is no longer just about growth—it is about balance sheet credibility.
And then there is the global financial plumbing itself. Beneath the surface of capital flows lies a more subtle, but equally consequential shift: the evolution and potential fragmentation of cross-border payments. Adrian draws a distinction between a relatively integrated clearing infrastructure and a far more fragmented settlement landscape. “On settlement, we see quite a bit of fragmentation and a lot of innovation in terms of having faster and cheaper systems,” he says.
For emerging markets, including many in Africa, this matters. Access to efficient, trusted cross-border payment systems is not just a technical issue—it is a question of financial sovereignty, cost of capital, and integration into global trade. The rise of alternative systems, from fintech platforms to tokenized payments, offers opportunity, but also raises new regulatory challenges. “The integrity of payments is absolutely key… anti-money laundering and counterterrorist financing initiatives” remain central, Adrian adds, extending even into the fast-evolving world of crypto, where the IMF is actively helping countries design regulatory frameworks.
If the old financial order was defined by concentration, the new one may be defined by complexity.
Meanwhile, risks are building in less visible corners of the system. Private credit, shadow banking, and leveraged non-bank institutions have grown rapidly, absorbing the surge in sovereign debt issuance over the past decade. “As governments have issued more debt, a lot of non-banks have stepped in,” Adrian says—a development that has supported markets, but also introduced new fragilities.
The concern is not immediate collapse, but amplification. In a downturn, these actors, less regulated, more interconnected—could transmit stress in unpredictable ways.
Overlaying all of this is a more familiar macroeconomic tension: inflation. The war-driven energy shock has already fed through to expectations. “Inflation expectations have increased… fairly broad across countries globally,” Adrian notes. Yet markets, for now, are betting on transience. “The expected inflation impact is somewhat contained in time, expectations are coming back down.”
That, in turn, shapes policy. Central banks, particularly in emerging markets, face a delicate balancing act. “The option value of waiting is high,” Adrian says, echoing the IMF’s broader guidance. But waiting is conditional. As Jason Wu adds, credibility remains the anchor: “It is important for central banks to act decisively when they actually start to see the impact on inflation and inflation expectations.”
For Africa and other emerging markets, the trade-offs are sharper. Growth is slowing even as inflation rises—a classic supply shock dilemma. Protecting the most vulnerable, especially against rising food and energy prices, becomes as important as stabilizing markets themselves.
Beyond the immediate horizon lies a different kind of risk—one shaped not by geopolitics, but by technology. Artificial intelligence, the report notes, is both a catalyst for productivity and a source of systemic vulnerability. “Cybersecurity is certainly a rising risk,” Adrian warns, particularly as financial systems become more digitized and interconnected. The IMF, he adds, has spent years helping countries build defenses: “to be extremely proactive in terms of the policy frameworks… and operational readiness to act, when necessary.”
