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Risks and capability

Four global risk objects open the portfolio. Order carries no rank. Each is read across driver, exposure, vulnerability, capacity, cascade and consequence; loss metrics are added only where they can be modelled.

6 min read0 figures1 table23 notesNR-STRATEGIC-FISCAL-GLOBAL-2026-BASELINE

Contents
  1. ·Edition home
  2. ·Executive summary
  3. 1Public budgets and markets stress together
  4. 2Key findings
  5. 3Systems and sectors at baseline
  6. 4Risks and capability
    1. 4.1 Risk objects
    2. 4.2 Capability ladder
  7. 5Energy shock, sovereign repricing and nonbank selling
  8. 6Readings from the other desks
  9. 7The 2027 agenda
  10. 8Systems in depth
  11. AMethodology
  12. BData appendix
  13. CReferences and record
  14. ·Complete edition, for print

4.1Risk objects

Each risk is read across the chain from hazard to consequence, with its status and evidence-quality level.

  1. ReportedEQL 3RSK-SR05-FIN-001

    Sovereign repricing with leveraged nonbank deleveraging

    Driver
    higher yields and forced deleveraging by leveraged funds65
    Exposure
    advanced-economy sovereign bond markets, repo markets, banks
    Vulnerability
    short-term issuance; zero-haircut repo; concentrated hedge-fund leverage
    Capacity
    central bank backstops; margin rules; market-structure reform5
    Cascade
    FIN → FIN → INF, HLT
    Horizon
    1 to 3 years

  2. ReportedEQL 4RSK-SR05-DEV-002

    Debt-service squeeze in low-income countries

    Driver
    net payments above new financing; higher spreads312
    Exposure
    IDA-eligible and other vulnerable borrowers
    Vulnerability
    external debt, thin reserves, hidden liabilities
    Capacity
    multilateral lending; restructuring processes1438
    Cascade
    FIN → HLT, INF
    Horizon
    1 to 5 years

  3. InferredEQL 3RSK-SR05-FIN-003

    Sovereign and bank feedback

    Driver
    bank holdings of sovereign debt of about 180% of Tier 1 capital in emerging economies5
    Exposure
    banks in emerging and euro area economies
    Vulnerability
    sovereign exposure; rollover risk in short-term issuance6
    Capacity
    Basel III capital rules; supervisory review4536
    Cascade
    FIN → FIN → DAT
    Horizon
    1 to 5 years

  4. InferredEQL 2RSK-SR05-CLI-004

    Disaster loss with thin fiscal and insurance buffers

    Driver
    concurrent hazards and rising insured losses2526
    Exposure
    governments with limited reserves or cover
    Vulnerability
    contingent liabilities not consolidated
    Capacity
    reserves; risk pools; insurance; budget contingencies
    Cascade
    CLI → FIN → HLT, INF
    Horizon
    annual

4.2Capability ladder

Existence is not readiness. Each of the fifteen capability functions is placed on the ladder by the strongest public evidence at the global level, from a policy listing to performance in real events.

Table 4.1Capabilities on the ladder of evidence: listed, exists, demonstrated, tested
FunctionRungLevelStrongest public evidence at baseline
Prevention and mitigationEXISTSfiscal rules and capital rules widespread; application uneven453639
Monitoring and observationADEQUATEregular debt and stability reports; hidden-debt data thin1617
Early warningEXISTSdebt sustainability frameworks and stability reviews1037
Preparedness and planningEXISTSrestructuring playbook and liability management guidance published14
Redundancy and reservesLISTEDfiscal buffers and reserves not consolidated
ResponseDEMONSTRATEDcentral banks acted in earlier market stress4243
Continuity of critical servicesLISTEDpayments and market infrastructure continuity not consolidated
RecoveryDEMONSTRATEDrestructurings completed in earlier cases; timelines long1438
AdaptationEXISTSrules and transparency standards revised over time3639
Social protectionLISTEDprotection of social spending during adjustment not consolidated
Finance and insuranceEXISTSmultilateral lending and insurance; protection gaps in sibling editions325
Institutional coordinationEXISTScreditor and debtor forum in place; processes slow131422
Technical infrastructureEXISTSmarket infrastructure; leverage data thin517
WorkforceLISTEDdebt-management and supervision capacity in low-income countries not consolidated
Research capacityADEQUATEcrisis science mature31323335
A capability listed in policy is not a tested one; each rung is the strongest public evidence at baseline.

Notes

Numbers are the edition’s reference numbers, so a note reads the same in every chapter. The full list, with every source and its licence, is in Annex C. Annex C, references

  1. 6IMF (ed.), Global Financial Stability Report, April 2026 (key messages page of 14 April 2026). International Monetary Fund, Washington. Observation year 2026. Accessed 2026-11-03.back
  2. 5BIS (ed.), Annual Economic Report 2026, Chapter II: High public debt and shifting financial markets, challenges for central banks (chapter page read to character 100,000 of 120,069). Bank for International Settlements, Basel, 28 June 2026. Observation year 2025. Accessed 2026-11-03.back
  3. 3World Bank (ed.), International Debt Report 2025 (data blog of 3 December 2025; external debt USD 8.9 trillion in 2024; USD 741 billion net payments over 2022 to 2024). World Bank, Washington. Observation year 2024. Accessed 2026-11-03.back
  4. 12World Bank (ed.), Global Economic Prospects, June 2026 (publication page; growth 2.5% in 2026; debt and sovereign spreads in developing economies). World Bank, Washington. Observation year 2026. Accessed 2026-11-03.back
  5. 14IMF, World Bank and G20 Presidency (eds.), Global Sovereign Debt Roundtable, 6th Co-Chairs Progress Report (press page of 15 April 2026; updated restructuring playbook and liability management manual; the report PDF was not opened). International Monetary Fund, Washington. Observation year 2026. Accessed 2026-11-03.back
  6. 38UNVERIFIED, not opened: G20, Common Framework for Debt Treatments beyond the DSSI, 13 November 2020, cited from memory. Observation year 2020. Accessed 2026-11-03.back
  7. 45Basel Committee on Banking Supervision (ed.), Governors and Heads of Supervision welcome progress to implement Basel III and discuss elements of the Basel Committee’s work programme (press release of 9 March 2026; about 75% of member jurisdictions have now implemented, or will shortly implement, the standards; the release gives no count). Bank for International Settlements, Basel. Observation year 2026. Accessed 2026-11-03.back
  8. 36UNVERIFIED, not opened: Basel Committee on Banking Supervision, Basel III: Finalising post-crisis reforms, December 2017, cited from memory. Bank for International Settlements, Basel. Observation year 2017. Accessed 2026-11-03.back
  9. 25UNVERIFIED, not opened: Swiss Re Institute (ed.), sigma 1/2026, Natural catastrophes in 2025 (insured losses of about USD 107 billion reported in summaries), taken from search-result summaries; the pages returned an access error and no figure is used. Swiss Re, Zurich. Observation year 2025. Accessed 2026-11-03.back
  10. 26UNVERIFIED, not opened: Munich Re (ed.), review of natural disasters in 2025 (January 2026; insured losses of about USD 108 billion reported by news outlets; one outlet gave a different overall total), taken from press reports; the Munich Re page returned an error and no figure is used. Munich Re, Munich. Observation year 2025. Accessed 2026-11-03.back
  11. 39UNVERIFIED, not opened: IMF (ed.), Fiscal Transparency Code, 2019, cited from memory. International Monetary Fund, Washington. Observation year 2019. Accessed 2026-11-03.back
  12. 1IMF (ed.), Fiscal Monitor, April 2026 (publication page; global public debt just under 94% of GDP in 2025 and 100% by 2029; key messages; estimates use information to 1 April 2026). International Monetary Fund, Washington. Observation year 2025. Accessed 2026-11-03.back
  13. 17FSB (ed.), Global Monitoring Report on Non-Bank Financial Intermediation 2025 (topic page; report published 16 December 2025; the page gives no figures). Financial Stability Board, Basel. Observation year 2025. Accessed 2026-11-03.back
  14. 10POST-CLOSE, context only: ECB (ed.), Financial Stability Review, May 2026 (landing page of 27 May 2026; vulnerabilities elevated; next review 18 November 2026; the page gives no sovereign figures). European Central Bank, Frankfurt. Observation year 2026. Accessed 2026-11-03.back
  15. 37UNVERIFIED, not opened: IMF and World Bank, Debt Sustainability Framework for Low-Income Countries (reformed framework in use from 2018), cited from memory. Washington. Observation year 2018. Accessed 2026-11-03.back
  16. 42UNVERIFIED, not opened: Bank of England, Financial Stability Report, December 2022 (gilt market and liability-driven investment episode), cited from memory. Bank of England, London. Observation year 2022. Accessed 2026-11-03.back
  17. 43UNVERIFIED, not opened: Basel Committee on Banking Supervision, Report on the 2023 banking turmoil, October 2023, cited from memory. Bank for International Settlements, Basel. Observation year 2023. Accessed 2026-11-03.back
  18. 13POST-CLOSE, context only: IMF, World Bank and G20 Presidency (eds.), Global Sovereign Debt Roundtable, 7th Co-Chairs Progress Report (press page of 14 October 2026; the report PDF was not opened). International Monetary Fund, Washington. Observation year 2026. Accessed 2026-11-03.back
  19. 22IMF (ed.), Questions and Answers on the Global Sovereign Debt Roundtable (page read; began February 2023; co-chairs IMF, World Bank and G20 Presidency; supports the Common Framework). International Monetary Fund, Washington. Observation year 2026. Accessed 2026-11-03.back
  20. 31UNVERIFIED, not opened: Reinhart, C.M. and Rogoff, K.S., This Time Is Different: Eight Centuries of Financial Folly. Princeton University Press, Princeton, 2009, cited from memory. Observation year 2009. Accessed 2026-11-03.back
  21. 32UNVERIFIED, not opened: Laeven, L. and Valencia, F., Systemic Banking Crises Revisited, IMF Working Paper WP/18/206, 2018, cited from memory. International Monetary Fund, Washington. Observation year 2018. Accessed 2026-11-03.back
  22. 33UNVERIFIED, not opened: Diamond, D.W. and Dybvig, P.H., Bank runs, deposit insurance, and liquidity, Journal of Political Economy 91(3), 401 to 419, 1983, cited from memory. Observation year 1983. Accessed 2026-11-03.back
  23. 35UNVERIFIED, not opened: Kaminsky, G.L. and Reinhart, C.M., The twin crises: the causes of banking and balance-of-payments problems, American Economic Review 89(3), 473 to 500, 1999, cited from memory. Observation year 1999. Accessed 2026-11-03.back

Cite this chapter

Valadbaygi, S. (Ed.). (2026). Chapter 4: Risks and capability. In Strategic Systems Report 2026: Sovereign, Fiscal and Financial Resilience (Baseline Edition 2026, Report No. NR-STRATEGIC-FISCAL-GLOBAL-2026-BASELINE) [Draft under review]. The Global Centre for Risk and Innovation (GCRI).

Every citation form of the whole report, BibTeX and RIS included, is on the edition home. Cite this report

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