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Emerging markets most at risk

Lachlan Maddock
— 1 minute read

One of the world’s largest investment banks has warned that emerging market economies have the most to lose in the outbreak.

While emerging market public debt is lower than that of developed markets, it’s still higher than it was during the Asian financial crisis and has risen faster than in developed markets.

“Looking across public debt stocks and the gap between growth and real rates, we find that public debt in Brazil, South Africa, Mexico, and Colombia [is] most at risk of being undermined by the current growth/rates configuration,” UBS said in a note. 

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“This configuration, while at a healthier position today, could also lead to fiscal risks rising notably in China, India and Malaysia. By contrast, Russia and Chile appear to have more room for manoeuvre.” 

Cases of coronavirus have been also increasing more rapidly in emerging markets outside of North Asia. 

“Less robust healthcare infrastructure, high shares of informal employment, and weak starting points for debt sustainability in several EMs imply that the economic fallout may be deeper and longer lasting than in DM,” UBS said

Investors have also already removed around $83 billion from emerging markets since the outbreak of the virus in one of the largest capital outflows ever recorded. 

“Advanced economies are generally in a better position to respond to the crisis, but many emerging markets and low-income countries face significant challenges,” said IMF managing director Kristalina Georgieva.

“They are badly affected by outward capital flows, and domestic activity will be severely impacted as countries respond to the epidemic.”

 

Emerging markets most at risk
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