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Corporate Debt in Emerging Economies

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Corporate Debt in Emerging Economies

A Threat to Financial Stability?

Brookings Institution,

5 Minuten Lesezeit
5 Take-aways
Audio & Text

Was ist drin?

Firms in emerging markets are borrowing more, but their debt’s purpose, composition and currency matter in assessing their countries’ economic strength.

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Editorial Rating

7

Qualities

  • Analytical
  • Overview

Recommendation

After sailing through the 2008 global financial crisis, emerging market economies (EMEs) have hit some headwinds in the form of higher debt, sluggish global economies and tighter credit conditions. The Federal Reserve’s long-awaited interest rate increase could unleash a financial storm in these countries, and one channel for that instability is EME corporate debt. Economists Viral Acharya, Stephen G. Cecchetti, José De Gregorio, Şebnem Kalemli-Özcan, Philip R. Lane and Ugo Panizza investigate EMEs’ vulnerability to another crisis. getAbstract suggests this scholarly analysis, written for the economic community, to finance professionals and investors.

Summary

The private sectors in emerging market economies (EMEs) have raised their indebtedness. Bonds issued by the financial industry totaled almost $1 trillion in 2014, compared to $400 billion in 2010, while nonfinancial corporate issuance was $400 billion, approximately twice its 2010 level. About 80% of this debt is in foreign currencies. Firms run four major risks with that debt makeup: “maturity mismatches,” in which short-term loans support long-term revenues; “currency risk,” when companies owe foreign currencies but their assets are in local currency; “rollover risk,” ...

About the Authors

Viral Acharya et al. are members of the Committee on International Economic Policy and Reform, a nonpartisan group of economists who examine monetary and financial crises, offer systematic analysis and advance reform ideas.

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