ANKARA
The Bank for International Settlements (BIS) has warned that emerging markets are vulnerable to increasing global financial turbulence.
The Switzerland-based BIS, which is the central bank for 60 central banks around the world, said in a new report published Sunday that "tremors" were appearing along "major fault lines in the global economy".
“China’s economic slowdown and the dollar’s appreciation have confronted emerging-market economies with a double challenge: Growth prospects have weakened, especially for commodity exporters, and the burden of dollar-denominated debt has risen in local currency terms,” the report said.
Moreover, credit flows to emerging markets have slowed, at a time when exchange rates of emerging markets have been hit hard, and their credit has been under pressure. This comes at a time when a large percentage of emerging-market companies have high levels of debt in dollars or other major currencies.
"Furthermore, even if a country has large foreign exchange reserves, the corporate sector itself may find itself short of financial resources and may cut investment and curtail operations, resulting in a slowdown of growth. So, even a central bank that holds a large stock of foreign exchange reserves may find it difficult to head off a slowing real economy when global financial conditions tighten. Arguably, such a slowdown is part of what we are seeing right now in emerging market economies," the report said.
“This is also a world in which interest rates have been extraordinarily low for exceptionally long and in which financial markets have worryingly come to depend on central banks’ every word and deed, in turn complicating the needed policy normalization,” it warned.
