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Emerging market bond purchases were much smaller than the extraordinary monetary expansion in advanced economies during May 2020. Jonathan Fortun and coauthors survey central banks with timely data and find limited support to government financing from these programs. They expected concerns about further currency depreciation to constrain the scale of emerging market quantitative easing.
Read the workEmerging markets were beginning to stabilize after the record capital outflows of March 2020. Elina Ribakova, Jonathan Fortun, Robin Brooks and Sergi Lanau attributed the shift in sentiment to the Federal Reserve’s exceptional easing. Their daily flow tracking, combined with strong offshore issuance, indicated that nonresident portfolio flows had returned to positive territory in the second quarter as of the report’s May 7 publication.
Read the workWidening fiscal deficits collided with limited external financing as the pandemic hit emerging markets. In May 2020, Jonathan Fortun and Sergi Lanau argued that private sector deleveraging would be unavoidable as scarce financial resources shifted toward funding public deficits. They identified South Africa as a particularly pronounced case, connecting the fiscal shock to the adjustment required in private balance sheets rather than treating government borrowing in isolation.
Read the workThe United States deployed a more forceful combination of fiscal support and central bank asset purchases than Japan or the euro area in the early pandemic response. This April 2020 comparison argued that the stronger US intervention could cushion the economic shock, while more conservative support elsewhere risked deeper recessions and slower recoveries. It presents that assessment as an outlook at the time, rather than a judgment based on subsequent outcomes.
Read the workThe dollar’s tendency to strengthen during crises gave the United States room for an exceptional fiscal and monetary response to COVID in April 2020. Jonathan Fortun and Robin Brooks contrast that advantage with emerging markets, where currency depreciation and rising bond yields constrained government action. They warned that limited policy space could compound the weak growth many emerging economies had already experienced before the pandemic.
Read the workExchange rate changes alone can misrepresent the pressure on emerging market currencies during a crisis. Jonathan Fortun and Robin Brooks combine currency movements with foreign reserve losses to compare the COVID shock in April 2020. Their exchange market pressure indices suggest that observed falls in the Turkish lira and Egyptian pound understated the underlying strain, while Mexico’s larger peso decline reflected more pressure being absorbed directly by the exchange rate.
Read the workCurrent account adjustment did not eliminate emerging markets’ funding pressures at the start of the pandemic. Jonathan Fortun and Sergi Lanau examine debt repayments relative to reserves, highlighting South Africa, Turkey and Ukraine in their April 2020 assessment. They argue that the scale of IMF emergency lending without conditions was too small relative to the financing needs they identified.
Read the workExplains why a pandemic-induced change in financing conditions alters the interpretation of emerging-market currency valuations.
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