He warns that “tolerant” financial markets will begin to turn around with pressure focusing on the most indebted and vulnerable countries, like Brazil and South Africa.
“Last year’s fiscal sins in emerging markets have been forgiven but not forgotten.”
The pressure on countries with large piles of foreign currency debt could increase further. The dollar debt burden is likely to face mounting pressure if the Federal Reserve is forced to raise interest rates to calm an overheated U.S. economy, with higher borrowing costs hampering rebounds and exposing vulnerabilities. Some central banks in emerging markets, like Brazil and Russia, are already raising interest rates as they seek to support their struggling currencies.
“High debt increases the risk of experiencing financial stress later,” says Kirby. “You often have to go through a long period of deleveraging, which can weigh on growth.”
A generation of progress shattered
A prolonged stroke of the pandemic stops and even reverses some of the progress in global poverty over the past decades. The financial crisis has slowed down but has not completely halted the reduction of poverty in the world. However, the pandemic has wiped out a generation of progress in eradicating extreme poverty. The World Bank estimates that between 119 million and 124 million people have slipped into extreme poverty after two decades of steadily declining poverty rates.
Especially for the West, these low and middle income economies will be crucial for guiding global growth in the years to come. Global institutions, such as the IMF and the World Bank, have stressed the importance of eradicating Covid cases around the world to prevent the pandemic from resurfacing.
“If you eliminate the Covid virus in advanced economies, but not in emerging markets, it will come back,” Carvalho warns.
These countries have also become a much bigger engine of the global economy in recent decades. China’s economy was the size of Britain’s in 2005. It is now more than four times the size, while India, Indonesia, Brazil and Nigeria will rise through the ranks.
“We are seeing a recovery in emerging markets, but it is not enough to undo the damage caused by the pandemic,” says Kirby. “For more than a quarter of these countries, it wiped out 10 years of per capita income gains. The top priority is the vaccine and then you want to look at the legacy of the pandemic – debt so high. “
Advanced economies may soon put Covid in the rearview mirror, but for many poorer countries the road to recovery is longer and more difficult.
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Source: www.telegraph.co.uk
This notice was published: 2021-04-10 11:00:00
