Emerging Markets Face Credit Crunch Amid High Inflation
Bloomberg reports on the impact for developing markets of the rapid rise in inflation and war in Ukraine following the worst quarter for emerging-market dollar bonds in 24 years. The article notes that the rise in inflation and increasingly large potential rate hikes being considered by the Fed are drawing investors to commodity exporters in the Middle East and Latin America, and that this will likely make it more difficult for lower-income and commodity-importing nations to borrow as costs increase. The war in Ukraine has also made lenders more risk-averse, which is also likely to put pressure on borrowers. Goldman Sachs’s Andrew Tilton and Kamakshya Trivedi explained “The economic costs of Russia’s invasion of Ukraine and the resulting sanctions are likely to be both significant and highly asymmetric,” while Jean-Dominique Butikofer, Head of emerging markets fixed income at Voya Investment Management said “Rising inflation, and more particularly food inflation, are giving emerging-market ministers of finance and central bankers growing headaches.” He also “warned that the need to subsidize food prices will hit the budgets of commodity importers, especially as the risk of social unrest grows alongside households seeing their purchasing power diminish.”