DOI: 10.53443/anadoluibfd.1846735 ISSN: 2687-184X

FRAGILITY MEASURES AND ECONOMETRIC ANALYSIS OF EXTERNAL FRAGILITY IN FRAGILE FIVE COUNTRIES

Salih Barışık, Engin Dursun
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This study investigates the causal relationships between five external fragility indicators and economic growth in the Fragile Five economies — Brazil, Indonesia, India, Türkiye, and South Africa — over the period 1994–2024 using panel causality analysis. The indicators examined are the current account balance-to-GDP ratio, international reserves-to-short-term external debt ratio, international reserves-to-GDP ratio, total external debt-to-GDP ratio, and total external debt-to-total exports ratio. The findings reveal significant heterogeneity across countries and indicators. Unidirectional causality running from the current account deficit to growth is established for Brazil and Türkiye, and across the panel, while South Africa exhibits the reverse pattern, consistent with the absorption approach. The reserves-to-short-term debt ratio demonstrates the strongest causal influence on growth, particularly for Indonesia and at the panel level, corroborating the Guidotti-Greenspan framework. There is a causal relationship between growth and the reserves-to-short-term-debt ratio in both Brazil and Türkiye. While there is a causal relationship from the reserves-to-GDP ratio to growth only in Indonesia, the opposite direction—from growth to the reserves-to-GDP ratio—shows a causal relationship in both Indonesia and South Africa. The results indicate that external fragility in the Fragile Five countries stems from liquidity problems rather than debt stocks. Furthermore, the results contain important policy implications that highlight reserve adequacy management, the quality of current account financing, and exchange rate flexibility as the most effective tools for reducing external fragility in emerging market economies.

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