Daily Management Review

Covid-19 Recovery Among Emerging Markets Could Be Slow Because Of Rising Debt


Covid-19 Recovery Among Emerging Markets Could Be Slow Because Of Rising Debt
With respect to the economic recovery from the Covid-19 pandemic hit, the emerging markets could fall further behind developed markets because of increasing levels of dents in the emerging economies, said an economist.
“With the pandemic, debt rose across all types ... the big increase of course was in government debt — and no surprise because of such a need to provide fiscal stimulus at the same time the tax revenues were down much across the board around the world,” Steve Cochrane, chief Asia-Pacific economist at Moody’s Analytics, said in a television interview.
“The real impact, however, I think is sort of an increasing divide between developed economies and emerging markets. The debt loads rose most in emerging markets and they may have the most difficulty in terms of taking care of this debt going forward,” he added. 
In 2020, the total debt of governments, corporate, household and financial sectors across the world rose increased by a record $24 trillion, according to Moody’s Analytics. That rise in debt pushed up the global debt to a new high of 366 per cent of gross domestic product, said that report from the consultancy firm.
According to the report, over the past decade the overall debt of emerging market economies had more than doubled and it is now equivalent to about one third of the total outstanding debt globally.
Emerging markets and economies noted the most growth in debt loads and going forward such economies could find it difficult to manage and serve those debts, the report said.
In the Moody’s Analytics report, the emerging markets of Turkey, Vietnam and Brazil were singled out with respect to currently possessing high levels of debt in more than one sector. There is a surge in coronavirus infections in many of the emerging economies including India, Argentina and Malaysia while the most of the developed economies are reporting a steady decline in the number of fresh cases including the United States, the United Kingdom and Australia.
Compared to the developed economies, the speed of securing and rolling out Covid-19 vaccines are much slower in the emerging markets, Cochrane noted. He said that government in many emerging economies could scale back the pandemic stimulus announced previously because of the elevated debt load on the economies.
Cochrane added that when those two factors are considered in conjunction, it could mean that the economic growth of the emerging markets was likely to be slower than that of the developed economies with the world slowly recovering from the health crisis.
“When the economy is growing quickly, the debt isn’t going to be that much of an issue,” said Cochrane.
Such situations will make economic growth around the world quite uneven and it is likely that the US and Europe will grow faster this summer while emerging markets “may have to wait a little bit longer”, the economist added.