Eventually, “markets will turn and then look at the debt-to-GDP and say, ‘What are you going to do about this?” said Eric Baurmeister, head of emerging-market debt at Morgan Stanley Investment Management in New York. “‘Now that we’re through the worst of it, how are you going to pay this back?’”
The monetary and fiscal stimulus that saved emerging-market asset prices this year may have lined many countries up for a new phase of the Covid-19 crisis – a fiscal mess from which there is no easy escape.
Central banks cut interest rates and governments whacked up spending as cases of the coronavirus exploded and lock-downs slashed investment and consumer demand. While the measures have stoked a recovery in risk appetite, they may have boxed policy makers and government officials into a corner.
