Fiscal Vulnerability And Financial Crises In Emerging Market Economies

Emerging market economies (EMEs) have experienced a wave of financial crises in recent decades. These crises have had a devastating impact on economic growth, poverty reduction, and social stability. Fiscal vulnerability is a key factor that contributes to financial crises in EMEs.

Fiscal Vulnerability and Financial Crises in Emerging Market Economies (Occasional Paper (International Monetary Fund) Book 218)

by Richard Hemming

4.6 out of 5

Language	:	English
File size	:	3142 KB
Text-to-Speech	:	Enabled
Enhanced typesetting	:	Enabled
Word Wise	:	Enabled
Print length	:	124 pages
Screen Reader	:	Supported

FREE

Fiscal vulnerability refers to the risk that a government will be unable to meet its financial obligations. This can be due to a number of factors, including:

• High levels of public debt
• Large budget deficits
• Unpredictable revenue streams
• Weak institutions

When a government is fiscally vulnerable, it is more likely to experience a financial crisis. This is because investors lose confidence in the government's ability to repay its debts. As a result, interest rates rise, capital flight occurs, and the currency depreciates. This can lead to a vicious cycle that can ultimately result in a financial crisis.

There are a number of policy measures that governments can take to reduce their fiscal vulnerability. These include:

• Reducing public debt
• Balancing the budget
• Diversifying revenue streams
• Strengthening institutions

By implementing these measures, governments can reduce the risk of financial crises and promote economic growth.

Case Studies

There are a number of case studies that illustrate the link between fiscal vulnerability and financial crises. One example is the Asian financial crisis of 1997-1998. This crisis was triggered by a combination of factors, including high levels of public debt, large budget deficits, and unpredictable revenue streams. The crisis led to a sharp decline in economic growth and a rise in poverty in the affected countries.

Another example is the global financial crisis of 2008-2009. This crisis was triggered by the collapse of the US subprime mortgage market. The crisis led to a sharp decline in economic growth and a rise in unemployment around the world. EMEs were particularly hard hit by the crisis, as they were more vulnerable to capital flight and currency depreciation.

Fiscal vulnerability is a key factor that contributes to financial crises in EMEs. Governments can take a number of policy measures to reduce their fiscal vulnerability and promote economic growth. By implementing these measures, governments can help to prevent financial crises and improve the lives of their citizens.

References

1. Agenor, Pierre-Richard, and Peter J. Montiel. Development Macroeconomics. Princeton University Press, 2016.
2. Calvo, Guillermo A., and Carmen M. Reinhart. "Fear of floating." Quarterly Journal of Economics 113.2 (1998): 379-408.
3. Krugman, Paul R. "Are emerging markets doomed to crisis?." Brookings Papers on Economic Activity 34.2 (2000): 107-172.
4. Rodrik, Dani. "The globalization paradox: Why global markets, states, and democracy can't coexist." WW Norton & Company, 2012.
5. Sachs, Jeffrey D. "The end of poverty: Economic possibilities for our time." Penguin Books, 2005.

Fiscal Vulnerability and Financial Crises in Emerging Market Economies (Occasional Paper (International Monetary Fund) Book 218)

by Richard Hemming

4.6 out of 5

Language	:	English
File size	:	3142 KB
Text-to-Speech	:	Enabled
Enhanced typesetting	:	Enabled
Word Wise	:	Enabled
Print length	:	124 pages
Screen Reader	:	Supported

FREE