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INTERNATIONAL CREDIT TO EMERGING MARKET ECONOMIES DURING THE COVID-19 CRISIS

Stefan Avdjiev, Bat-el Berger and Hyun Song Shin

Financial Stability Review, 2021, 61-70

Abstract: As the Covid-19 pandemic swept through the globe in the first half of 2020, international bank lending to emerging market economies (EMEs) held up surprisingly well, especially when compared to the 2015 EME stress period and the 2008 great financial crisis (GFC). The authors use the international financial statistics (IFS) of the Bank for International Settlements (BIS) to shed light on what made the Covid?19 episode different from previous stress periods. In contrast to the GFC, the banking sector was not the epicentre of the financial stress during the Covid?19 stress in March 2020. Traditional vulnerability indicators, such as the share of short?term international lending, did not send meaningful signals during the Covid?19 stress period. By contrast, the financial channel of exchange rates had a significant impact on international lending during the same period. The importance of the latter channel has increased considerably over the past decade against the backdrop of rapidly mounting US dollar debt in EMEs.

Date: 2021
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