Policies must boost investment in Emerging Market and Developing Economies (EMDE) to offset the long-term growth slowdown caused by the epidemic, the invasion of Ukraine, and the rapid tightening of global monetary policy.
Some other key details are:
- In the first half of 2022, most emerging markets and developing economies (EMDEs) experienced currency depreciation against the US dollar, with EMDEs with fiscal deficits greater than 3% of GDP experiencing eight times more depreciation, on average.
- Larger fiscal deficits can lead to higher borrowing costs, which can lead to currency depreciation, and the impact of currency depreciation can be destabilizing for EMDEs as it can lead to inflationary pressures and make it more difficult for countries to service their external debt, limiting their ability to invest in infrastructure and other key areas of development.
- Countries with larger fiscal deficits may be particularly vulnerable to currency depreciation and its associated economic impacts, such as higher inflation, increased borrowing costs, and reduced investment, which can have significant implications for economic growth and development in these countries.
- Some EMDEs, such as Brazil and Turkey, have experienced significant currency depreciation in recent years, with the Brazilian real losing over 30% of its value against the US dollar since the start of 2021.
- To mitigate the risks of currency depreciation and promote long-term economic growth, experts suggest that EMDEs should focus on strengthening their economic fundamentals, such as improving governance, investing in education and infrastructure, and reducing debt levels.
Currency depreciation can have significant implications for EMDEs, particularly those with larger fiscal deficits, as it can lead to inflationary pressures, increased borrowing costs, and reduced investment. To mitigate the risks of currency depreciation and promote long-term economic growth, EMDEs should focus on strengthening their economic fundamentals, such as improving governance, investing in education and infrastructure, and reducing debt levels. To know more read our report on ‘Global Economic Prospect 2023’.