The EM Covid crisis … well not quite!

Covid has caused plenty of economic pain across the world, but we have not seen much sign of specific Emerging Market (EM) stress yet. That’s because EM central banks have benefited both from the overspill of liquidity provided by the G4 central banks and have been temporarily indulged with similar privileges. Lockdowns meanwhile have crushed domestic demand, narrowing vulnerable external imbalances. This is a story of obscured rather than resolved fundamental imbalances. And it is likely to reinforce bad policy choices in EMs, rather than encouraging reform.

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