Emerging market (EM) risks appear to have improved since September as those countries followed sound macroeconomic policies and made progress toward exchange rate flexibility and prudent debt management, the International Monetary Fund said Tuesday.

"External positions generally remain very strong, and robust growth has led to an improvement in fiscal positions in many countries," said the IMF in its Global Financial Stability Report.

The world also benefits from the development of the emerging market, said the report, adding that inflation risk is less of a concern, partly because emerging economies, "in particular China and India," can help meet growing global demand for both goods and services despite narrowing capacity constraints in industrial countries.

But the report also warned the benign external environment and accompanying rise in risk appetite, which reflected in the rapid rise in capital flows to some EM countries, have pose challenges for those authorities and could threaten financial and economic stability, "especially if capital flow reversals were to occur."

"Private sector flows into emerging Europe have already risen significantly, and banks have been heavy issuers of foreign exchange-denominated debt in international markets," the report said.

In some countries, the generally strong external position of the government may mask potentially growing vulnerabilities for corporations and banks.

Portfolio flows into sub-Saharan Africa, where local markets are still small, could affect monetary and exchange market conditions and pose risks of a capital flow reversal, said the report.

Source: Xinhua