IMF: Sound Policies Shield Emerging Economies from Global Shocks

The International Monetary Fund (IMF) reported on Monday that emerging market economies have demonstrated significant resilience in the face of recent global financial turbulence. According to the Washington-based institution, this stability is largely attributed to improved monetary policy frameworks and the development of deeper local currency bond markets, which have helped nations mitigate external shocks.

Foundation of Financial Resilience

The IMF's analysis highlighted that countries with strong economic fundamentals successfully tapped into their domestic bond markets. With international investor interest sometimes wavering, these nations cultivated a new base of local buyers. This strategic shift has been crucial for greater financial stability, reducing vulnerabilities associated with foreign currency borrowing and the risk of sudden capital flight.

In contrast, the fund pointed out that developing countries with weaker policy credibility and less mature domestic financial systems remain dependent on more volatile financing sources. This includes foreign currency debt and short-term local currency instruments, which can amplify economic strain during periods of global stress.

Despite the progress, the IMF issued a clear warning about persistent risks. It noted that political pressures could undermine hard-earned credibility, while consecutive global crises have diminished fiscal buffers worldwide. Furthermore, the post-pandemic surge in inflation has altered inflation expectations, and the fund observed that fiscal rules have often failed to curb public debt growth in many emerging markets due to limited compliance.