In the short term, the present situation, marked by the necessary increase in interest rates and the high uncertainty regarding growth and inflation projections, means that banks face significant risks in different balance sheet segments. At the net interest income level, the substantial improvements recorded by some banks cannot be considered long-lasting and it is reasonable to believe that, as the higher interest rate environment persists, their funding costs will likely rise further. The increase in the cost of funding may accelerate for banks, driven by the gradual reduction in Eurosystem liquidity facilities, and their increased cost, and the developments seen in deposits, with depositors seeking better remunerated financial instruments and part of the savings buffers accumulated during the pandemic having been depleted. The continuation and/or heightening of the recent tensions in the global banking sector could also contribute to this increase. 6  Moreover, the value of fixed income financial exposures (e.g. bonds, especially those with longer maturities) has declined. In addition, credit quality, which remains highly resilient, may ultimately weaken as inflation and rising interest rates erode real disposable income. This would drive up provisioning and reduce income generation capacity. In this respect, although the debt levels of non-financial corporations and households have fallen considerably since the global financial crisis,15 debt-servicing costs are climbing sharply as interest rates rise.
The increase in sovereign spreads has elevated debt at risk for vulnerable EMDEs, including those in our constituency.  The high food and fuel prices have had a clear disproportionate impact on poorer countries and vulnerable populations in all countries, and the two overlapping crises have worsened poverty significantly in the developing economies since 2020, with food insecurity emerging as a new major challenge in low-income countries. In this regard, strong global initiatives are needed to address food insecurity, reduce poverty worldwide and alleviate the risks of social unrest that is already evident. The IMF would need to do its part as it did during the COVID pandemic. The IMF’s proposed Food Shock Window could play a useful role if the facility is more accessible, and its terms and conditions are less restrictive.  The adverse effects of climate change, to which no country is immune, continue to wreak havoc in all parts of the world. Most recently, the flooding in Pakistan, a member of our constituency, has created an unprecedented humanitarian catastrophe, a major health crisis, with initial damage assessed at 10-15 percent of GDP. We have to recognize and collectively address the existing highly inequitable system, where countries with negligible carbon footprints bear the burden of negative externalities of climate change. I stop here.