Emerging Markets: Emerging vulnerabilities - ANZ

EM debt has grown significantly in the past decade and according to the International Institute for Finance (IIF), EM debt (for 30 countries) increased from around 145% of GDP at the end of 2007 to 210% of GDP as of the end of 2017, notes the research team at ANZ.

Key Quotes         

“In nominal terms, debt increased by almost USD50trn, from just under USD22trn to around USD70trn. By comparison, debt in the advanced economies rose by around USD33trn to USD178trn.”

“The IMF has identified that a rapid accumulation of debt in a short space of time (eg the 5–30 rule) tends to result in financial crisis and/or a sharp slowing in growth, but an increase in debt is, in itself not necessarily bad.”

“Indeed, typically speaking debt provides growth opportunities. Aside from looking at debt levels, a pertinent metric to assess the riskiness of leverage is debt serviceability or the interest coverage ratio (ICR).”

“The elevated debt levels in EMs would appear to be vulnerable in coming years owing to slowing EM growth, particularly China, and higher global rates, given the redemption profile.”