Governments and central banks risk tipping the world into a fresh financial crisis, the International Monetary Fund has warned, as it called time on a corporate debt binge in the developing world.

Emerging market companies have “over-borrowed” by $3 trillion in the last decade, reflecting a quadrupling of private sector debt between 2004 and 2014, found the IMF’s Global Financial Stability Report.

This dangerous over-leveraging now threatens to unleash a wave of defaults that will imperil an already weak global economy, said stark findings from the IMF’s twice yearly report.

The Fund warned there was no margin for error for policymakers navigating these hazardous risks.

The slightest miscalculation, they said, could collapse into a “failed normalisation” of interest rates and market conditions, wiping 3pc from the world’s economic output over the next two years.

How debt levels compare in the emerging and developed world

But indebted corporate balance sheets were just one element of a poisonous “triad” of challenges facing the financial system.

Seven years after the financial crisis, a combination of lingering debt burdens in advanced economies, and vanishing market liquidity could result in a new credit crunch when conditions tighten.

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“Policy missteps and adverse shocks could result in prolonged global market turmoil that would ultimately stall the economic recovery,” said Jose Viñals, financial counsellor at the IMF.

The world’s major central banks should ensure policy remains “accommodative” for fear of setting off a new wave of instability that would see bond prices rise and asset prices collapse, said the IMF.

“Risk premia could decompress in a disorderly way causing a vicious cycle of firesales, redemptions, and more volatility,” said Mr Viñals.

The report called on the Federal Reserve to hold off on its first interest rate hike in nine years and for the authorities in the eurozone and Japan to continue with unprecedented stimulus measures.

“Managing any outbreaks in financial contagion will require nimble and judicious use of available policy buffers,” added the report.

The IMF painted a picture of a brittle financial system that was coming to the end of a period of cheap liquidity propped up by low rates.

These benign conditions are set to evaporate as the credit cycle tightens in emerging markets.

Flashing red: emerging markets are at the tail-end of the credit cycle

The summer’s stock market volatility and record capital flows from emerging markets hint at the disruption that awaits, said the report.

“Some markets show clear signs that liquidity conditions have worsened and that accommodative monetary policy is masking underlying risks,” the report said.

“The challenge will be for abnormal market conditions to adjust smoothly to the new environment.”

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