COVID-19: A Triple Whammy for Emerging Market and Developing Economies

By Kavaljit Singh | Briefing Paper # 36 | April 23, 2020

Even though the rapid spread of the novel coronavirus (COVID-19) pandemic in the US and European Union has captured the world’s attention, one should not lose sight of the pandemic and its associated health, economic and financial stability challenges in the rest of the world. As the COVID-19 pandemic advances globally, Africa and South Asia are witnessing a surge in the number of new cases lately, and these regions could soon become its next epicenters in the coming weeks. The emerging market and developing economies (EMDEs) are facing a triple whammy ― massive capital outflows, a sudden stop in economic activity, and collapse in commodity prices ― on top of a public health crisis caused by COVID-19.

Contents

Introduction

A Sudden Stop in Capital Flows

LCBMs: No Insulation from Volatile Capital Flows

Spreads Widening, Defaults Increasing

Rapid Currency Depreciation and its Effects

The Big Commodity Demand Shock

Soaring Debt Burden

2020: A Year of Sovereign Defaults?

The Growing Weight of Private Sector Creditors

Getting Debt Relief Right

The Need for Strong Fiscal Response

Why Financial Regulation Matters

Currency Swaps and Repo Facility: No Game Changer

A Well-resourced and Reformed IMF

ODA Has a Unique Role to Play

No Country is an Island

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