Emerging market debt trouble? Debt surge weakens resilience

Emerging markets' sovereign debt is at the highest level for a century after the COVID-19 crisis, weakening their economic resilience.

Key takeaways:

  • Emerging market government debt rose by 10ppt y-o-y in 2020 to an average of 65%.
  • Weakened fiscal standing is creating downward pressure on sovereign credit ratings.
  • Rising inflation and upcoming interest rate normalisation add to concerns over debt sustainability.
  • Public debt loads are forecast to rise further, implying little fiscal policy space and weaker economic resilience.
  • Exchange rate shocks can raise inflation and thus raise insurance claims costs, while rating downgrades can worsen insurers' capital position.

Tags

Economic Insights Sovereign risk

See also former Economic Insights