Impact of higher interest rates on developing economies

Useful video from the IMF that addresses the impact of higher interest rates on developing economies. The increase in the US Fed Funds rate increases the likelihood of financial crises among vulnerable developing countries. The main concerns are:

• Public debt burdens in developing countries have been exacerbated in recent years by back-to-back global crises.

• A lot of the debt accrued by low-income countries is coming due over the next couple of years.

• Rising interest rates mean these countries will find it increasingly difficult to meet their repayments.

• Raising U.S. interest rates has the effect of making American government and corporate bonds look more attractive to investors. The result is money flows out of developing countries as they are seen as too risky. This makes the exchange rate weaker and imports more expensive.

• With interest rates still rising and global growth slowing, more collaborative efforts from international bodies and developed economies would be needed.

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