Environment for emerging economies turns more challenging: IMF

The International Monetary Fund (IMF) today said the environment faced by emerging economies has turned more challenging as deficits and debt ratios remain significantly above pre-crisis levels.

Emerging market economies have overall stronger fiscal positions, Sanjeev Gupta, acting director in the Fiscal Affairs Department, told reporters at the IMF headquarters here on the sidelines of its annual Spring Meetings.

"They initially weathered the crisis well, in large part by running down their fiscal buffers," he said.

While there is significant heterogeneity among emerging economies, deficits and debt ratios remain significantly above pre-crisis levels, Gupta said at the launch of the April 2014 Fiscal Monitor, which focuses on the role of expenditure reform in strengthening public finance.

"The environment faced by emerging economies has turned more challenging. In some economies, financial vulnerabilities and changes in market sentiment will likely compound the fiscal challenges," he said.

Economies with higher non-resident holdings may see sharper increases in interest rates as liquidity conditions in advanced economies tighten.

On average, non-resident holdings amount to about one-third of EM debt and those on local currency debt have more than doubled in several emerging market economies since 2009, he added.

"While this is a welcome development for domestic market deepening and overall financial development, it does come with some risks," Gupta said.