Coronavirus: Emerging markets woes not over – Moody’s

Credit rating agency Moody’s has predicted that oil exporters from emerging markets (EM) will experience severe revenue shortfall as a result of the coronavirus pandemic.

“Emerging market sovereigns will suffer long-lasting revenue losses due to the coronavirus crisis, with governments’ ability to implement and enforce effective revenue-raising measures set to be a key credit driver over the coming years,” Moody’s Investors Service said in its recent report.

“Almost all EMs will record budget deficits this year and face constraints in cutting spending amid the pandemic, amplifying the importance of revenue generation. EM fiscal revenue will stay below pre-crisis levels amid a slow and halting global recovery,” Moody’s said.

The international rating agency said EM governments’ ability to implement and enforce effective revenue-raising measures will be an important credit driver over the next few years.

According to Moody’s, on the average, EM governments will lose revenue about 2.1 percentage points of GDP in 2020, above the 1.0 pp loss in advanced economies (AEs).

“The coronavirus crisis has underlined the importance of revenue generation for emerging market governments.

Lucie Villa, a Moody’s Vice President – Senior Credit Officer further explained that for EMs, any fall in revenue is particularly important for creditworthiness because their government spending needs – social, infrastructure and debt financing – are often more urgent than for advanced economies and they have a generally narrower revenue base.

With the support of development finance institutions, the rating firm said, EM governments will look to implement or resume tax-raising measures. However, only a few governments have successfully raised revenue much faster than GDP growth over the last 10 years.