The emergency support provided by central banks and finance ministries during the Covid-19 pandemic has fuelled speculation and left the world vulnerable to another financial crisis, the International Monetary Fund has warned. Policymakers were faced with a “challenging” trade-off between continuing to support economic activity while preventing unintended consequences and medium-term financial stability risks, the IMF said in its half-yearly Global Financial Stability Review (GFSR). Noting that share prices appeared to be overvalued and house prices had risen rapidly in many countries, the Washington-based body said investors were becoming increasingly concerned about the economic outlook amid rising virus infections and greater uncertainty about the strength of the recovery, particularly in emerging markets. It said: “Warning signs – for example, increased financial risk-taking and rising fragilities in the nonbank financial institutions sector – point to a deterioration in the underlying financial stability foundations. If left unchecked, these vulnerabilities may evolve into structural legacy problems, putting medium-term growth at risk and testing the resilience of the global financial system.” The release came at the start of the IMF’s annual meeting, with the agenda dominated by concerns about risks to global growth and the cloud hanging over the fund’s managing director, Kristalina Georgieva. The IMF’s executive board said there was no conclusive information to support allegations that Georgieva acted improperly when she was deputy president of the World Bank in 2018 and reaffirmed its ”full confidence” in her leadership. The GFSR was more upbeat about the financial position of households, which it said was better than during the global financial crisis of 2007-09, while banks were also in a much stronger position this time around. In a separate report released on Tuesday, the IMF told rich countries to make good on their vaccine and climate change promises to developing nations as it warned of a dangerous divergence in economic prospects around the globe. It revised down its growth forecasts for many western countries – including the UK – but said its real concern was low-income countries where the picture had become markedly worse. The IMF’s half-yearly world economic outlook (WEO) showed recovery from last year’s collapse in activity was continuing but the momentum had weakened. Gita Gopinath, the IMF’s economic counsellor, said the global growth projection for 2021 had been revised down marginally from 6% in July to 5.9% and was unchanged for 2022 at 4.9%. The UK is expected to be the fastest growing of the G7 group of leading industrial nations, although the IMF’s estimate was cut from 7% to 6.8%. The US, Germany, Japan and Canada also had their growth estimates revised down. Gopinath said the impact of the pandemic had been much harder on low-income countries, which were also at greater risk of being affected by climate change. She said these divergences were a consequence of the “great vaccine divide” and large disparities in policy support. While more than 60% of the population in advanced economies were fully vaccinated and some were receiving booster shots, about 96% of the population in low-income countries remained unvaccinated. “The foremost policy priority is therefore to vaccinate at least 40% of the population in every country by the end of 2021 and 70% by mid-2022. This will require high-income countries to fulfil existing vaccine dose donation pledges, coordinate with manufacturers to prioritise deliveries to Covax[the global initiative to make access to vaccines more equitable] in the near-term and remove trade restrictions on the flow of vaccines and their inputs.” Looking ahead to next month’s UN climate change conference in Glasgow, Gopinath said another urgent priority was the need to slow the rise in global temperatures and contain the growing adverse effects of the climate crisis. This required more ambitious commitments to reduce greenhouse gas emissions. “A policy strategy that includes an international carbon price floor adjusted to country circumstances, a green public investment and research subsidy push, and compensatory, targeted transfers to households can help advance the energy transition in an equitable way. Just as importantly, advanced countries need to deliver on their earlier promises of mobilising $100bn [£73bn] billion of annual climate financing for developing countries.”