The Impact of Local Currency Depreciation on Current Account Balances

We continue to expect current account deficits for this group of EMs to remain similar to pre-pandemic levels, even though they will still be wider than the past two years. Now, regardless of these dynamics that we see currently, global growth headwinds will be a challenge if and when they weigh on demand for EM exports and remittances. The broader balance of payments dynamics would also come under pressure with a stronger dollar and high-developed market interest rates. And ultimately, the adequacy of foreign exchange reserves is a key differentiating factor for us.