Emerging markets to suffer deficits in 2021; delayed vaccines could impose big challenges: IMF

Emerging markets to suffer deficits in 2021; delayed vaccines could impose big challenges: IMF

Large and persistent fiscal deficits in most emerging and frontier market economies are expected to persist in 2021, albeit to a smaller extent than in 2020, according to the International Monetary Fund (IMF).

This came within the IMF's updated report on global financial stability, released on Wednesday.

In the World Health Organisation's baseline scenario of continued easy financial conditions, emerging market financing will remain a significant source of funding, as it has been in recent months, according to the report.

Amid the ongoing coronavirus crisis, the report stressed that the resumption of portfolio flows is central to the stability of many emerging market economies along with retaining market access.

The report warned that an uneven global economic recovery, driven by delayed healthcare and vaccine solutions, is expected to cause a formidable challenge for emerging and frontier economies.

Between March and November 2020, fixed income funds recorded cumulative inflows of about $280 billion, $230 billion of which poured in since the beginning of September, according to the IMF.

On the other hand, the report underscored that vulnerabilities in investment funds continue to be a concern, as stretched asset valuations expose investment funds to the risk of a price correction, and