Emerging market debt ratios - opportunities and risks

It’s tempting to think otherwise, but not all emerging market debt is created equal. In this piece we examine the public, private and external debt profiles of individual emerging markets.

Investing in emerging market (EM) fixed income instruments requires as clear a picture as possible on the public and private debt profile of individual countries. We take a look at recent developments in the emerging market debt space, placing the picture into context versus their developed market peers.

While EM enjoys lower debt ratios than developed market peers on aggregate, it is also clear that the EM debt picture is quite disparate.

The public sector - lessons learned

In general, emerging market governments learned important lessons from the crises of the 1990s, resulting in a more cautious approach towards fiscal excesses and external debt exposure, as seen for example in Turkey, the Philippines, Indonesia, Mexico and Brazil. That allowed emerging markets as a whole to better weather the 2008/9 global financial crisis, while developed market peers faced a strong jump in debt/GDP ratios.