2018 - 2019 Edition of Citi Perspectives for the Public Sector

Citi Perspectives for the Public Sector |  2018-2019 29 Building Emerging Market Resilience to New Economic Challenges G lobal economic changes underway could have significant adverse effects on emerging market countries, though vulnerability varies considerably between countries. This article outlines the challenges facing some emerging market countries and explains how emerging market sovereign debt issuers can shore up their public finances and preserve or improve their credit ratings using risk mitigation tools. Fortunately there is still time for unprepared countries to build resilience. A decade after the 2008 Global Financial Crisis (GFC), the world economy has entered a new period of potential stress that exposes emerging market (EM) countries to renewed risks and challenges. 1 Indeed, efforts by the mature economies to respond to the GFC set in motion dynamics that now pose dangers to EMs. Over the past ten years, an abundance of inexpensive capital flowed from mature economies with low interest rates to EM countries offering higher returns. However, improved conditions in the U.S. have prompted the U.S. Federal Reserve to shift towards tightening monetary policy, and the European Central Bank could follow suit in the near future. This transition threatens to diminish the flow of funds to EMs or even reverse the flow of funds. Meanwhile, volatility has returned to currency and commodity markets, and global growth is becoming less synchronized. These trends could undermine EM financial stability, and some economies are already dealing with the negative effects. In this uncertain environment, Citi’s Sovereign Advisory team assists EM sovereign debt issuers to preserve or even improve their credit ratings through the implementation of targeted risk mitigation tools. Citi offers an array of products and services to help such countries address the adverse conditions with which they are increasingly grappling. Fortunately for the EMs unprepared for the challenges ahead, there is still time to build resilience. Hanan Amin-Salem Sovereign Debt Advisory, Citi Paull Randt Associate, Public Sector, Citi 1 This article defines emerging markets broadly to include sub-investment grade, low- and middle-income countries.