Most analysis of EM vulnerabilities to Fed tapering and the likelihood of tougher external financing conditions over the coming years has focussed on the size of a country’s current account deficit. But the risks posed from mounting levels of external debt have generally been overlooked. In most cases, the growing burden of external debt is backed by a large buffer of foreign exchange reserves. But this is not always the case. External debt dynamics are particularly worrying in Turkey and South Africa.
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