Focus: COVID-19 swings the spotlight back onto emerging countries’debt
While the focus, so far, has mainly been on China, Europe and the United States, the consequences of the COVID-19 pandemic are likely to be even more severe in emerging economies. Even though their degree of vulnerability to this shock depends on many factors, the initial situation of their public finances is a key issue, as it determines their response capacity to the multitude of economic consequences of this crisis. However, their public debt was already at an all-time high in 2019. The massive capital outflows generated by this health crisis also remind us that many emerging economies continue to suffer from the “original sin”, i.e. the inability to issue bonds in local currency. In addition to this initial risk on public finances and the depreciation of currencies, the exposure of emerging countries to three other risks linked to the COVID-19 pandemic should be emphasised: 1) the implementation of strict containment measures, 2) the reliance on tourism revenues and 3) the dependence on non-agricultural commodities. Nine countries are affected by three out of these four sources of vulnerability, 31 by two of them, and 71 by one of the four. The additional financing provided by international organizations (notably the IMF) and the debt arrangements announced by creditor countries will help many low-income countries, but should be of little use to the larger emerging economies.