Hello everyone and welcome to this latest episode of MacroWaves, the BNP Paribas Economic Research podcast. In today’s discussion, we delve into the public finances of emerging economies in 2025, based on an exclusive analysis of our most recent EcoPerspectives issue focused on these economies. With robust but slowing growth, rising public debt and limited fiscal flexibility, what challenges and opportunities lie ahead for these countries? That's what we're going to explore together. I'm Claire d’Izarny-Gargas, and to discuss this, I'm joined by:
- Hélène Drouot, an expert on Latin America
- Lucas Plé, who specialises in sub-Saharan Africa
Hello and welcome to you both!
Let's start with the good news. Hélène, how is overall growth in emerging countries looking?
Hélène Drouot: In general, growth has remained robust since the beginning of 2025. For our sample of 28 emerging countries, aggregate gross domestic product (GDP) grew by just over 1% quarter-on-quarter in Q1 and Q2 2025. For 2025 as a whole, average real GDP growth is expected to be slightly above 4% (4.1%), which is very close to the 2024 average (4.2%).
Claire d’Izarny-Gargas: What have been the drivers of growth in the current context of heightened trade tensions?
Hélène Drouot: The primary drivers of growth since the beginning of the year have been the easing of financial conditions and, above all, strong exports. Contrary to expectations, global trade has, at least in the first half of the year, weathered the US tariff shock rather well. This is primarily due to advance purchases made before the tariff increase took effect. Additionally, and more importantly, it is due to the reorganisation of trade flows.
Claire d’Izarny-Gargas: What does that mean?
Hélène Drouot: Let's take China, one of the main countries targeted by the rise in US customs duties. Despite the tariff shock, Chinese exports increased by 6% year-on-year in the first nine months of 2025, as they redirected to third markets to circumvent customs duties and diversified their trading partners to offset lost market share in the United States.
In addition, global demand for electronic products, driven by the surge in investment in artificial intelligence, has significantly bolstered exports, especially in ASEAN countries. Semiconductors are exempt from US tariffs for the time being.
Claire d’Izarny-Gargas: Let's now shift our focus to monetary policy. What kind of support can we expect?
Hélène Drouot: In most countries, with Brazil being a notable exception, the gradual decline in inflation has enabled central banks to reduce their key interest rates since early 2025. This easing is likely to continue in 2026, with Brazil and Hungary expected to begin a cycle of rate reductions. However, rate cuts will most likely be smaller than those seen in 2025. This is primarily due to the uneven pace of disinflation. Additionally, while capital flow volatility is currently contained, it could escalate, particularly in India, Indonesia and certain Latin American countries (Peru, Colombia and Brazil) ahead of the 2026 elections.
Claire d’Izarny-Gargas: Monetary easing will continue, albeit at a slower pace. Lucas, are there any other factors that could hinder growth?
Lucas Plé: Yes, absolutely. In fact, a major constraint that could impact growth in the coming years is fiscal policy. For most countries, public debt and fiscal deficits are currently at significantly higher levels than in 2019, that’s to say before the Covid crisis. Governments must take measures to control this increase in the debt ratio. However, according to the IMF, this will become increasingly difficult in the years ahead because the gap between the effective interest rate on debt and the GDP growth rate is expected to narrow to zero or even turn positive for some emerging economies.
Claire d’Izarny-Gargas: It's the famous ‘snowball effect’ that is getting worse. You mentioned that for some countries, the difference between interest rates and nominal growth may become positive. Which specific countries do you have in mind?
Lucas Plé: According to the IMF, the gap between borrowing rates and growth is projected to become positive for Brazil, Mexico, South Africa and Colombia between 2026 and 2030. But in general, all emerging countries will face higher interest rates than in the past decade, even as potential growth slows for many of them. Consequently, public debt is unlikely to stabilise any time soon: IMF projections suggest that the total debt of emerging economies is expected to increase by nearly 10 percentage points of GDP by 2030, meaning that public debt would rise from 74% of GDP today to 84% of GDP by 2030. Among emerging economies, China and Poland are expected to see the most significant increases in public debt during this period: Chinese debt (as measured by the IMF) is expected to rise by 20 percentage points of GDP by 2030, while Polish debt is expected to rise by 18 percentage points of GDP. Of course, there are exceptions: Argentina and Egypt, for example, which are currently benefiting from IMF support plans and are expected to see their debt ratios decline over this period.
Claire d’Izarny-Gargas: Given this deterioration in public finances, the question arises: which countries have the least room for manoeuvre to support their economies in the face of a slowdown in growth?
Lucas Plé: Countries like Mexico, Argentina, Egypt and Romania have virtually no room for manoeuvre. These countries have seen a rapid increase in public debt, which is now at a high level. They continue to run substantial fiscal deficits, which are exacerbated by a worrisome debt interest burden. In addition, there are also countries whose room for manoeuvre is restricted by structural limitations, such as rigid expenditures, particularly in Mexico, Brazil and Colombia, or by relatively low revenue levels, as seen in India, where government revenue has stagnated at around 20% of GDP.
Claire d’Izarnny-Gargas: A word about Brazil, Hélène. Growth is slowing, but does the government have any levers to support it?
Hélène Drouot: Brazil's public debt is already high, standing at 76% of GDP at the end of 2024. As Lucas said earlier, the government's room for manoeuvre will be severely constrained by the snowball effect on its debt. Nevertheless, the country could mobilise extra-budgetary channels such as banks and public companies to enhance credit and investment, thereby stimulating domestic demand. However, these actions should not jeopardise the monetary easing expected by the markets at the beginning of next year.
Claire d’Izarny-Gargas: In conclusion, Lucas, what is the main medium-term risk for emerging economies overall?
Lucas Plé: Well, given the rise in public debt ratios in emerging economies projected from now until 2030, I would argue that the foremost risk to look out for in the years ahead is the increased vulnerability of governments to international financing conditions. While this vulnerability will rise, governments will continue to have limited room for manoeuvre. Interest payments on debt are expected to remain high and government spending will likely become more inflexible. As a result, there will be diminished capacity for investment spending on infrastructure and innovation, which is essential to bolster growth potential and ultimately contain the rise in public debt.
Claire d’Izarny-Gargas: Thank you for your thorough insights, Hélène and Lucas. Thank you also to our listeners for joining us. We invite you to read our analyses on the BNP Paribas Economic Research website. We particularly recommend our latest issue of EcoPerspectives, a publication dedicated to emerging economies. All links are in the description. See you soon for a new episode of Macro Waves.
Find out more by reading our latest issue of EcoPerspectives:
EcoPerspectives — Emerging Economies | 4th quarter 2025– Economic Research – BNP Paribas
