Identifying Macroeconomic Resilience to External Shocks in Emerging and Developing Countries: Lessons from the Global Shocks of 2020-2022

This paper uses a straightforward Resilience Indicator, constructed from a small set of economic and institutional variables, to show that by 2019, prior to the COVID-19 pandemic and subsequent global shocks, it was possible to identify emerging markets and developing countries that would encounter serious economic and financial problems if an external shock were to materialize. The list of developing countries identified as less resilient in 2019 using this simple methodology closely aligns with the World Bank’s 2022 compilation of countries in distress or at high risk of external debt distress. Furthermore, the emerging market economies that this indicator identified as the least resilient in 2019 were countries that had either defaulted or were teetering on the edge of default by 2022. Identifying countries that are most vulnerable to large external shocks can assist policymakers and the international community in directing their efforts towards crisis prevention, thereby avoiding the detrimental consequences of financial crises on development.