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 for emerging economies.

Even though their degree of vulnerability to this shock depends on many factors, the starting point of their public finances is a key issue, as it determines their capacity to respond to the crisis’ many economic consequences. However, their public debt was already at an all-time high in 2019. Coface assesses the direct risks (economic and sectoral) of the pandemic on the development of emerging countries.

Capital outflows and increased sovereign risk go hand in hand, even for local currency indebted economies

Capital outflows on a never before seen scale are the most immediate effect of rising global uncertainty in emerging markets. During March, sales by foreign investors of bonds and equities from 24 emerging markets exceeded USD 80 billion, a four-fold increase over the last quarter of 2008.