Barclays Capital considered that the COVID-19 pandemic will exacerbate the pre-existing structural vulnerabilities of emerging markets (EMs) and will create new challenges. It indicated that EMs were already adversely impacted by the reversal of globalization even before the pandemic, which is evident in disruptions to trade agreements and in rising global protectionism, as well as in lower foreign direct investment inflows from advanced economies to EMs. But it said that the virus outbreak weakened global demand, accelerated de-globalization, reduced international mobility and caused a deterioration in the fiscal profiles of some EMs, which have added to the latter's vulnerabilities. 

Also, it considered that the virus-related lockdown measures are likely to have a long-lasting impact on the services sector in EMs, given that the sector is not geared towards work from home. It added that the drop in mobility due to the pandemic will not just negatively impact tourism-dependent countries, but will also affect economies that have a large aviation sector. It said that the expansion of international travel hubs in EMs was one of the major contributors to the increase in their travel and tourism receipts during the last decade, and added that 10 out of the 20 busiest airports in 2019 are in EMs.

Barclays anticipated that the COVID-19 crisis will also significantly weaken the public finances of some EMs. It classified EMs according to their ability to manage the fiscal deterioration. It noted that "frontier" EMs may need to rely on support from international financial institutions and on debt relief, given the absence of large local markets to finance their wide fiscal deficits. It also expected the pandemic to exacerbate the fiscal vulnerabilities of more "challenged" EMs, such as Brazil and South Africa, which would prompt them to issue more debt denominated in local currency. But it said that "near-developed" or "advanced" EMs, such as China, Russia and South Korea, will continue to have manageable debt and financing profiles. 
Source: Barclays Capital