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The Covid crisis has not raised domestic borrowing costs for governments

CHART OF THE WEEK  
1
0 February 2021  
EMERGING COUNTRIES: THE COVID CRISIS HAS NOT RAISED DOMESTIC BORROWING COSTS FOR GOVERNMENTS  
François Faure  
Change in government domestic 10Y bond yield (basis points)  
Between end-2019 and end-March 2020  
Since end-March 2020  
Since end-2019  
2
2
1
1
50  
00  
50  
00  
5
0
0
-
50  
-
-
-
-
-
100  
150  
200  
250  
300  
iN: India, ID: Indonesia, CN: China, MY: Malaysia, KR: South Korea, TH: Thailand, BR: Brazil, CL: Chile, CO:  
Colombia, MX: Mexico, PL: Poland, HU: Hungary, CZ: Czech Rep., RO: Romania, RU: Russia, TR: Turkey, ZA:  
South Africa  
SOURCE: BLOOMBERG  
Almost a year ago, the pandemic triggered a financial shock that shook the emerging countries. Since then, monetary and financing conditions  
have largely returned to normal. Portfolio investment even soared to record levels in the second half of 2020 in a context of a massive  
support from the Fed. Under this environment, for the majority of the major emerging countries, government borrowing costs in local  
currency are equal or lower than they were at year-end 2019. And yet swelling fiscal deficits have driven up public debt to unprecedented  
levels. The low cost of government borrowing can be attributed largely to the widespread easing of conventional monetary policy via policy  
rate cuts, and to the securities purchasing programmes adopted by many EM central banks. Yet low borrowing costs also reflect the need  
or obligation for banks and other domestic financial intermediaries to mobilise national savings to cover public financing needs. During this  
unprecedented crisis, governments have had to support their economies by using every lever possible (fiscal stimulus, state-backed loans).  
The rise in public debt cannot be blamed on poor fiscal management. It is normal and highly welcome that borrowing costs in the emerging  
countries are not higher than pre-crisis levels.  
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