Asian emerging market economies are increasingly susceptible to external shocks as a result of growing external debt, a report from Moody’s Investor Services has shown.
The report, titled The Evolution of Emerging Markets External Debt: Private Sector Debt Drives Broad-Based Build-Up of Emerging Markets External Vulnerability Risk, showed that external debt to GDP ratio for the Asian region has grown from 31 per cent in 2008 to 47 per cent in 2015, and for many countries in the region, debt is growing faster than GDP and foreign exchange.
While individual economies differ, Moody’s associate managing director Elena Duggar noted that recent developments indicate an increased vulnerability to external shocks.
“These trends show that emerging and frontier markets are now more susceptible to economy-wide crises than they were a few years ago," she said.
A majority of debt growth has come in the form of private sector debt, which now has an annual growth rate of 14.3 per cent, compared with public debt growth of 5.9 per cent.
“While sovereign debt profiles have improved, the increase in private sector debt is making sovereigns more vulnerable to contingent liabilities,” Ms Duggar said.
Moody’s added that the debt situation could worsen if economic growth remains “sluggish” since this would affect foreign exchange revenue or, if US interest rates continue to rise and subsequently slow, capital flows.