The global pandemic is hitting emerging markets harder than advanced nations because they have less ability to absorb shocks that in some cases are even greater, World Bank chief economist Carmen Reinhart said.
Lower-income nations don’t have the fiscal space that exists in rich countries to counter the effects of the lockdown, Reinhart said on Tuesday at the Bloomberg Invest Global virtual conference. From tourism to commodity prices, they’re reliant on industries that have collapsed, and they face issues from rising debt levels to revenue shortfalls, she said.
“If the advanced economies are seeing problems, it actually pales in comparison to some of the problems and challenges that the developing countries and emerging markets are seeing because they don’t have safety nets,” Reinhart said. “Countries are torn between diverting resources to debt servicing versus using the resources to support social safety, both the medical front and support for lost income. There’s that enormous tension,” she added.
Reinhart is co-author, with former International Monetary Fund chief economistKenneth Rogoff, of the 2009 book “This Time Is Different: Eight Centuries of Financial Folly.” The book made them go-to resources on the history of government defaults, recessions, bank runs, currency sell-offs, and inflationary spikes.
Reinhart, whose appointment was announced last month, underlined the importance of China’s participation in the Group of 20’s debt suspension for poor countries, saying that relief would be “infinitely smaller” if the world’s second-largest economy wasn’t taking part.
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