Pri­vate debt in emerg­ing mar­kets

Finweek English Edition - - IN BRIEF -

De­spite con­cerns about the rapid growth of pri­vate sec­tor debt in emerg­ing mar­kets (EMs), fears that a debt cri­sis will en­gulf the en­tire emerg­ing world are over­done, ac­cord­ing to Cap­i­tal Eco­nomics. How­ever, fi­nan­cial risks are build­ing in sev­eral coun­tries, in­clud­ing larger emerg­ing mar­kets like China and Brazil.

Be­tween 2000 and 2010, pri­vate debt in 19 of the world’s largest emerg­ing economies rose by about $10tr (R117tr), ac­cord­ing to Bank for In­ter­na­tional Set­tle­ments (BIS). In the five years since, it has ex­panded by a fur­ther $5tr (R58tr), and pri­vate debt is on course to in­crease by $30tr (R350.5tr) be­tween 2010 and 2020, ac­cord­ing to the BIS.

Th­ese num­bers should not be read in iso­la­tion, Cap­i­tal Eco­nomics said. Firstly, the fo­cus should be on the pace of lend­ing growth in EMs, not the level of to­tal debt. Se­condly, rapid credit growth has been con­cen­trated in a small num­ber of economies (see graph on right). There are al­ready signs that lend­ing is slow­ing in th­ese mar­kets.

“The fi­nal point to note is that while most at­ten­tion tends to fo­cus on the ex­pan­sion of debt in dollar or lo­cal cur­rency terms, it is just as im­por­tant to pay at­ten­tion to the prospects for GDP,” Cap­i­tal Eco­nomics said. Rapid nom­i­nal GDP growth can pre­vent the credit ra­tio from bal­loon­ing de­spite a rapid ex­pan­sion in debt.

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