Financial globalization and fiscal perfomance in emerging markets

Measuring and predicting the impacts of global financial integration for emerging markets

Little work has been conducted on the implications of the global financial integration of emerging markets over the past decade, and the benign global financial market environment in which it occurred. This paper makes a contribution in this context by exploring the impact of the global financial conditions in recent years on emerging market fiscal performance for 40 countries. In addition, the paper explores the extent to which structural fiscal reforms in these countries are likely to have contributed to improved market access.

Key conclusions are:

most countries’ budgets have benefited substantially from the decline in global interest rates and spreads, dollar depreciation, and high commodity prices
there is a general expectation of a rise in global interest rates, reflecting both a rebound in global activity, policy factors, and further alignment in the currency markets
there is an added concern that the most vulnerable countries could be hit hardest by a change in external conditions, given that they tended to benefit most from the benign environment

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Financial globalization and fiscal perfomance in emerging markets