RSS FeedBy M. Isi Eromosele
The global economy has been in the grip of a severe economic and financial recession, which has seriously affected both developed and emerging markets alike. It has been particularly hard on many emerging market countries because their economies are now more incorporated with the global market. Additionally, the demand for their commodity exports have been greatly curtailed and foreign direct investment (FDI) has leveled off, leaving many projects in abeyance.
A positive development is that domestic financial systems in many of these emerging market nations have not suffered serious damage as a result of this recession. This is primarily because due to the intermediate development level of their financial sectors, they have not been fully opened up to intricate financial instruments of monetary transactions.
The emerging markets that had gained entry into the global financial capital markets, which enabled them to receive private financing for development projects, have seen this loan source shut. This is because the sovereign debt owed by many of these countries are not being rolled over when they fall due because the international lenders find it very difficult to do so.
The budgets of many of these emerging countries are being severely tested because of the global downturn. As some commodity prices have taken a beating on the global market, government revenues have been correspondingly affected. A continuing trend of declines in donor support and stricter financial requirements has put added stress on these budgets. Currency depreciation and rising interest rates will team to increase debt service costs.
Some emerging market countries that took proactive steps will be more able to ride out this global crisis. These include those who built up their reserves, putting them in a strong budgetary position, a few without foreign debt and those that have attained economic constancy.
Many emerging economies cannot spend themselves out of this global crisis because they lack the funds to do so. Donor support has basically evaporated. A good number of these countries face compulsory financial restrictions and the full resumption of bilateral financial flows is uncertain at best. As such, emerging markets will need to reduce spending and improve their competency.
To establish financial shock absorbers, those countries with flexible exchange rates should let them float. Conversely, the countries with fixed exchange rates may suffer added financial stress because of top down effects from the global recession. In countries with low inflation, there is some room for easing finance restrictions.
M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance
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