The path of fiscal policy normalisation in Emerging Markets: The MUFG Global Markets Podcast

Widening fiscal deficits and rising debt levels across emerging markets amid one of the largest economic shocks in recent history comes as no surprise. As markets begin to form new contours of normality towards a post-virus equilibrium, attention is turning towards fiscal policy normalisation.

Ehsan Khoman, Head of Emerging Markets Research (EMEA), believes that the fiscal adjustment process will not be uniform and will be highly de-synchronised across EMs. Reversing the unprecedented fiscal stimuluses of 2020 too quickly could suppress the recovery and potentially lead to larger than necessary hits to output.

However, this will need to be balanced against preserving fiscal sustainability and not adding permanent fiscal costs that could undermine the provision of public services over the long-term.

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