Global financial leaders convene in Saudi Arabia to address emerging market risks

RIYADH: Emerging market economies are facing escalating challenges, including geopolitical tensions, sluggish global growth, financial volatility, and increasing public debt, according to the governor of the People’s Bank of China. 

Speaking at the two-day AlUla Conference for Emerging Market Economies, organized by the Saudi Ministry of Finance and the International Monetary Fund, Pan Gongsheng emphasized the need for proactive policy measures and strengthened multilateral cooperation to enhance economic resilience. 

“In my view, emerging markets face four key challenges,” Gongsheng said. “The first challenge is geopolitical tension.” He highlighted how increasing geopolitical conflicts and protectionism disrupt international value chains and restrict the flow of capital, technology, and labor. 

“There has been a drop in global growth and productivity gains and the rising divergences in key industries across countries, mainly due to uneven development and resource misallocation,” he said. 

Gongsheng’s remarks align with the IMF’s recent report, which warns that friendshoring — the practice of countries trading primarily with geopolitical allies — could reduce global economic output by up to 1.8 percent. 

Emerging markets, particularly in Asia, may experience up to 6 percent declines due to this shift.

Despite these warnings, a Financial Times report said China has intensified its control over technology and resources, including restricting key battery technology exports, disrupting global value chains, and escalating geopolitical tensions.

Gongsheng identified the second challenge as the slower medium-term growth of the international economy. 

“We are now facing policy uncertainties in some economies. If protectionism escalates, rising trade fluctuations will drive up inflation expectations and undermine medium-term growth,” he added. 

Citing IMF forecasts, he said global economic growth is projected to hover at just 3 percent in the medium term, the lowest level since 2000. 

Financial market volatility and capital outflows represent the third major challenge. 

“The trajectory of the interest rate in major advanced economies remains highly uncertain,” Gongsheng said. 

“Markets have become particularly sensitive to unexpected economic data. If rates differ and rise significantly from market expectations, market repricing may increase asset price volatility in emerging markets.” 

This aligns with a recent Reuters report, which said emerging markets are facing significant challenges due to a strong US dollar and high treasury yields. 

These factors have led to weaker local currencies, increased costs for servicing dollar-denominated debt, reduced capital inflows, and dampened economic growth. 

Policymakers in these regions find it difficult to counteract these pressures effectively, which are further heightened by new US tariff and trade policies. 

The fourth issue Gongsheng discussed was the burden of high public debt and its implications for financial stability. 

“The IMF points out that global public debt risk has risen significantly due to political and other factors. Those risks not only exist in developing countries — the level of public debt in some advanced economies also merits close attention,” he said. 

He warned that growing investor concerns over fiscal sustainability could trigger government bond market volatility, with potential spillover effects on other asset classes, liquidity risks, and financial stability. 

According to a report by the Institute of International Finance, the global debt stock increased by over $12 trillion in the first three quarters of last year, reaching nearly $323 trillion. 

The IIF attributes the rise to declining borrowing costs and a heightened risk appetite among investors, underscoring concerns similar to those expressed by the governor. 

To address these challenges, Gongsheng outlined key policy responses for emerging markets. 

“First, we should continue improving monetary policy frameworks, enhancing the efficiency of monetary policy transmission, increasing policy transparency, and improving policy communication,” he said. 

He also advocated for increased exchange rate flexibility, stronger public debt management, improved macroprudential regulations, and the development of local currency markets to mitigate capital flow risks. 

Gongsheng stressed the importance of multilateralism and global financial governance reform. 

“The IMF has made great progress in surveillance and governance reform. At the same time, there is still more work to be done for us to advance global financial governance reform,” he said. 

He called on the IMF to enhance support for developing countries, promote trade and investment liberalization, and establish comprehensive policy tools to help emerging markets address capital flow risks and external shocks. 

“The current quota shares can no longer reflect the actual position of emerging markets in the global economy,” Gongsheng said, urging the IMF to establish a “concrete and binding timetable” for future quota realignments, with discussions on fiscal realignment plans set by June.

RIYADH: Maintaining financial discipline is crucial for countries in the Middle East as they work to diversify their economies and reduce reliance on energy revenues, according to a Qatari minister. 

During a panel discussion at the AlUla Conference for Emerging Market Economies organized by the Saudi Ministry of Finance and the International Monetary Fund, Ali bin Ahmed Al-Kuwari, Qatar’s minister of finance, said that countries in the Middle East have engaged in healthy competition as they pursue their economic diversification journeys. 

Saudi Arabia’s Vision 2030, Qatar’s Vision 2030, and the UAE’s Vision 2031 programs are focused on transitioning from a hydrocarbon-based economy to a knowledge-driven one.

These initiatives also aim to strengthen non-energy sectors, which include tourism, hospitality, manufacturing, and technology.

“While we build the diversification, it is very important to have a long-term view of how we see things change in terms of revenue and expenditure. The fiscal policy framework in Qatar builds different scenarios for revenue. We build discipline around the spending so the spending goes to the right places. We make sure that surpluses go in the right direction,” said Al-Kuwari. 

He added: “Surplus goes to the Qatar Investment Authority because it is Qatar’s revenue diversification engine. A part of the surplus also goes to the shock absorption buffer by enhancing the Qatar Central Bank reserves. Part of it is also reinvested in the economy itself to achieve diversification.” 

According to the minister, countries including the Kingdom, the UAE, Bahrain, Kuwait, and Oman are all diversifying their economies effectively. 

“Saudi, UAE, Bahrain, Kuwait, Oman everyone is working together. It is a healthy competition. We are also complementing each other,” the minister said.

He also said that Qatar’s economic diversification is based on four sectors, including technology, low-carbon manufacturing, logistics, and tourism, adding that the nation has already started seeing the results. 

“In tourism, during the World Cup in 2022, we received 2.3 million visitors. In 2023, the year after the World Cup, visitors increased to 4 million, and in 2024, we welcomed 4 million,” said Al-Kuwari. The Qatari minister also said his country seeks to increase the production of liquefied natural gas by 80 percent in a phased manner by 2030, and it will help ensure a sufficient energy supply in the world. 

During the event, which was held in the historic city of AlUla and runs from Feb. 16— 17, Jin Liqun, president and chairman of the Asian Infrastructure Investment Bank, said the entity is closely cooperating with other multilateral development banks to assist the funding needs in emerging economies. 

“We do not work alone, as a new institution, we work with our peer institutions, and other members of the MBD family. We develop our policy lending to support the countries’ efforts toward net zero,” said Liqun. 

He added: “We provide local currency financing. We can help countries to avoid currency risks, and also we believe that it is important to introduce climate-resilient debt crisis financing. This provides temporary relief after climate disasters. We have a soft fund window to help reduce the costs of infrastructure investments.” 

Liqun further said that the Asian Infrastructure Investment Bank is assisting emerging economies in positioning themselves within the global green economy and accessing its value chains.

“The green transition is a major opportunity for emerging countries, especially countries in the Gulf Cooperation Council regions. This is a great opportunity for GCC countries to develop sustainable and resilient economies,” added Liqun. 

The Dean of the School of Economics and Business at the University of Chile, Jose De Gregorio, said emerging markets should continue doing what they are doing now but should also effectively address the potential risks as time progresses. 

“Emerging markets should keep doing things which they are doing now. However, there are risks which we have to take into account and be prepared for. First, fiscal policies are not as strong as they were fifteen years ago. Why? Because we have spent a lot of money during the previous crisis. The second one is the geopolitical thing,” added De Gregorio. 

The Governor of the Central Bank of Nigeria, Olayemi Cardoso, said countries should possess a deep knowledge of their economies before making strategic fiscal policy decisions. 

“My experience has been that it is important for economies to understand their own economies and not just necessarily go in line with what everybody else is doing,” said Cardoso.