Identifying Economies at Risk: A Balance-of-Payments Vulnerability Framework for External Adjustment, Reserve Adequacy, and Emerging-Market Stability
Year: 2014
Type: other
Abstract: Balance-of-payments vulnerability remains one of the most persistent sources of macro-financial instability in emerging and developing economies. Although external accounts are conventionally monitored through current-account balances, reserve levels, external debt ratios, and exchange-rate movements, crises often emerge from the interaction of these indicators rather than from a single threshold. This paper develops a risk-governed framework for identifying economies at risk of balance-of-payments stress. It integrates classical balance-of-payments theory, the absorption and elasticity approaches, the monetary approach, intertemporal current-account analysis, currency-crisis models, sudden-stop literature, reserve-adequacy frameworks, and contemporary institutional surveillance tools. The paper argues that current-account deficits are not inherently unsustainable; their risk content depends on financing composition, maturity structure, currency denomination, export capacity, reserve adequacy, exchange-rate alignment, terms-of-trade exposure, remittance stability, institutional credibility, and the credibility of the policy mix. Methodologically, the study uses conceptual synthesis, structured literature review, and policy-framework design rather than econometric testing. It contributes a Balance-of-Payments Vulnerability Matrix, an External Adjustment Channels model, a Reserve Adequacy Framework, an Early Warning Indicator Dashboard, and a composite Balance-of-Payments Vulnerability Score. The paper concludes that external adjustment should be treated not as a one-time correction but as a governed process combining relative-price adjustment, expenditure switching, expenditure reduction, financing strategy, reserves management, debt restructuring where needed, and institutional reform.
Author: ABEDALRHMAN, KAHTAN
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7165486830