Brad Setser reminds us of the fact that EM fiscal deficits are largely being financed domestically. Which is a reminder that the macroeconomics of COVID-19 is happening in a similar fashion everywhere. Namely… https://twitter.com/Brad_Setser/status/1297763482193014784

The private sector has faced a loss of income, but also a huge loss of consumption opportunities. The private sector saving rate has increased sharply under “lockdown” creating surplus funds available to finance deficits elsewhere—of not the domestic government then who?

Fortunately, an active fiscal policy response has served to offset some of lost private income, so recycled the surplus saving to otherwise deficit agents—holding up overall private incomes as a result, without which private credit and welfare would be hugely damaged;

And this is how is should be. The private equals the current account plus fiscal deficit. If the current account it roughly unchanged (not necessarily true) then the fiscal authorities are providing the financial assets into which the private sector can save.

So the fact that EM fiscal deficits are largely domestically financed mirrors what is happening globally, that governments are funding private savings. What is great at this time is that (some) EMs are able to keep domestic saving at home.

It might be that this Crisis has revealed that EMs can act like DMs, and pursue an expansionary policy mix (subject to initial conditions being right). https://thegeneraltheorist.com/2020/03/17/the-fiscal-response-to-covid-19-the-time-to-act-is-now/