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There are two types of emerging markets: Commodity importers and commodity exporters.The first category is headed for trouble.
They’re stuck using falling currencies to pay for higher commodity imports and chewing through reserves to defend those currencies as the bills increase for food and fuel. Inflation is high locally and allowing the currency to depreciate risks a rout and political instability.
Emerging markets are experiencing the biggest drawdowns in foreign currency reserves since 2008 according to JPMorgan. We saw what happened with Sri Lanka earlier this year and now JPM is warning about Pakistan, Egypt, Turkey and Ghana.
Brad Setser, a senior fellow at the Council on Foreign Relations highlights vulnerabilities in countries that borrowed to fund currency reserves rather than buying them during the good times. He highlights Egypt, Pakistan, Argentina and Turkey.
These cases are generally well known but WSJ highlights other emerging problem countries, including Czechia and Hungary.