Halloween: Trick or treat from the emerging markets?

Metrics may spook or satisfy investors

Emerging markets have been hit hard by the Covid-19 pandemic. Economy-wide shutdowns have necessitated significant stimulus packages which, coupled with a hit to revenues due to lockdowns, have meant large fiscal deficits.

The impact on debt ratios has amplified by contractions in national output - the numerator (the fiscal deficit) is higher than previous years, while the denominator is smaller.  As a result, the IMF's latest projections from their widely followed October 2020 World Economic Outlook show general government debt to GDP ratios in emerging markets will cross 60% of GDP by YE2020, nearly 10% of GDP higher than 2019 and its highest level in at least two decades.  Notwithstanding the fact that higher debt ratios mean credit profiles are weaker, focusing on this metric alone gives a partial p...