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M. Ayhan Kose, Franziska Ohnsorge, Peter Nagle, and Naotaka Sugawara

The COVID-19 pandemic is a blow to an already fragile global economic outlook. The health crisis, sharp downturn in activity, and turmoil in global financial markets caught emerging market and developing economies at a bad moment. The past decade has seen the largest, fastest, and most broad-based increase in debt in these economies in the past 50 years. Since 2010, their total debt rose by 60 percentage points of GDP to a historic peak of more than 170 percent of GDP in 2019 (see Chart 1). Although China accounted for the bulk of this increase—in part due to its sheer size—the debt buildup was broad-based: in about 80 percent of these economies, total debt was higher in 2018 than in 2010. Even excluding China, debt rose by 20 percentage points of GDP, to 108 percent, in 2019. As these economies respond to the pandemic, their debt will only increase.

International Monetary Fund

The staff report for El Salvador’s request for a Stand-By Arrangement is examined. Fiscal consolidation led to a reduction in the public debt-to-GDP ratio, and the country has experienced the highest growth rates in a decade. Real GDP growth is projected to slow to 3.2 percent in 2008, reflecting lower growth in remittances, a tightening of external financing conditions, and a decline in investment. Exports, however, have remained buoyant despite weaker external demand. The banking system remains liquid and well capitalized, although nonperforming loans have increased and profitability is declining.

International Monetary Fund. Asia and Pacific Dept and International Monetary Fund. Monetary and Capital Markets Department
In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.
Jihad Dagher
Financial crises are traditionally analyzed as purely economic phenomena. The political economy of financial booms and busts remains both under-emphasized and limited to isolated episodes. This paper examines the political economy of financial policy during ten of the most infamous financial booms and busts since the 18th century, and presents consistent evidence of pro-cyclical regulatory policies by governments. Financial booms, and risk-taking during these episodes, were often amplified by political regulatory stimuli, credit subsidies, and an increasing light-touch approach to financial supervision. The regulatory backlash that ensues from financial crises can only be understood in the context of the deep political ramifications of these crises. Post-crisis regulations do not always survive the following boom. The interplay between politics and financial policy over these cycles deserves further attention. History suggests that politics can be the undoing of macro-prudential regulations.