Monday, April 18, 2016

22 April 2016: Understanding the Slowdown in Capital Flows to Emerging Markets

Weicheng Lian
International Monetary Fund

Net capital flows to emerging market economies have slowed since 2010, affecting all regions. This chapter shows that both weaker inflows and stronger outflows have contributed to the slowdown and that much of the decline in inflows can be explained by the narrowing differential in growth prospects between emerging market and advanced economies. The chapter also highlights that the incidence of external debt crises in the ongoing episode has so far been much lower, although the slowdown in net capital inflows has been comparable in breadth and size to the major slowdowns of the 1980s and 1990s. Improved policy frameworks have contributed greatly to this difference. Crucially, more flexible exchange rate regimes have facilitated orderly currency depreciations that have mitigated the effects of the global capital flow cycle on many emerging market economies. Higher levels of foreign asset holdings by emerging market economies, and in particular higher levels of foreign re serves, as well as lower shares of external liabilities denominated in foreign currency (that is, less of the so-called original sin) have also been instrumental.
Details in chapter two of the recently released Spring 2016 IMF World Economic Outlook (attached and available at )

Date: April 22, 2016
Time: 03:30 P.M.

NIPFP Auditorium, Ground Floor
National Institute of Public Finance and Policy,
18/2 Satsang Vihar Marg, Special Institutional Area,
New Delhi-110067(INDIA)


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