Azernews.Az

By Bloomberg

Emerging markets have limited fiscal room for maneuver as they seek to shield their economies from the impact of rising borrowing costs in the U.S., World Bank Managing Director Sri Mulyani Indrawati said Tuesday.

Indrawati, speaking in an interview with Bloomberg Television, said the possible increase in U.S. interest rates makes the dollar-denominated debt of emerging markets “a source of concern.” The plunge in oil prices can also eventually hurt some developing countries by reducing the revenue of neighboring oil exporters, she told Mark Barton.

Developing nations “are going to have to face this new reality” of higher interest rates as the U.S. Federal Reserve approaches its first rate increase since 2006, Indrawati said from Istanbul, where finance ministers and central bank governors from the Group of 20 are holding a two day meeting. “Many of them actually have a fiscal space which is very limited because of their counter-cyclical policies since the crisis in 2008-09.”

The U.S. Federal Reserve has signaled it may raise interest rates this year as the world’s biggest economy strengthens. Some developing nations have called on U.S. policy makers to consider the effect of the action on other economies.

The strength of the U.S. dollar makes the euro an attractive funding alternative for emerging markets, Jay Collins, Vice Chairman, Corporate and Investment Banking at Citigroup Inc., said in an interview in Istanbul.

“A number of emerging market sovereigns have seen their funding costs increase in local currency terms as the dollar has appreciated,” Collins said. “So for those that have a general funding appetite for euros, the euro is an increasingly attractive funding alternative to the dollar.”