An EM risk heatmap
- Many EM economies have seen cover for foreign obligations and fiscal position slip in recent years
- Compared to some large emerging market economies, Asian countries look fairly healthy
- Taiwan and South Korea have some of the best scores in the EM space
- Thailand and Philippines have downshifted somewhat from strong external positions
- China, India, Malaysia, and Indonesia fall in the middle of the EM vulnerability cohort
• Economies scoring poorly in this exercise run risks of disorderly currency depreciation, capital flow volatility, debt service difficulties, and broader financial and economic distress
• Key indicators of analysis are foreign exchange reserves, fiscal balance, private and public sector debt, external (hard currency) debt, savings-investment balance, gross external funding requirement, and real exchange rate
• We examine the evolution of these indicators across time series and cross section data, which allows us to glean shifts in relative vulnerability
• In general, vulnerability indicators have worsened in EM in recent years, as both the cover for foreign obligations and fiscal position have slipped in many countries
• Compared to some large emerging market economies, Asian countries look fairly healthy
• Taiwan and South Korea have some of the best scores in the EM space
• Thailand and Philippines have downshifted somewhat from strong external positions
• China, India, Malaysia, and Indonesia fall in the middle of the EM vulnerability cohort; while there are other economies with worse fundamentals, a year of higher rates and likely volatility in capital markets will keep the policy makers of these four economies on their toes
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