Topic of the Day - Fragile Five

UPSC Exam Preparation: Topic of the Day – Fragile Five

In August 2013, a financial analyst at Morgan Stanley coined the term “Fragile Five” to represent emerging market economies that have become too dependent on unreliable foreign investment to finance their growth ambitions. The five members of the Fragile Five include Turkey, Brazil, India, South Africa and Indonesia.

This is an important topic for UPSC civil services exam. It comes under the International Relations and economy sections of the IAS syllabus.

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  • India is showcased to be one among the three top investment destinations across the globe by United Nations Conference on Trade and Development (UNCTAD), till the year 2019.
  • An evidence to India’s growing popularity as the top investment destination is the upgrade for the country in the recent Moody’s ratings and World Bank’s EoDB (Ease of Doing Business ranking) rankings 2018
    • In the G20, Among the 10 emerging market economies, India is the only one of the two economies having secured an improvement in the ratings along with Mexico in the last 5 years.
    • While, China, Saudi Arabia, Russia, South Africa and Brazil (five major emerging market economies) have moved down the ladder by at least one mark in the preceding five years according to Moody’s.

Fragile Five India

Where does India stand?

  • India has improved on the twin deficit front since 2012-13
  • India’s external debt ratio is remarkably lower than it was five years ago, and
  • More than 10 months of import cover is possible through India’s foreign exchange reserves as compared to around six months in the year 2012.
  • There has been an impressive surge in foreign investments into India. Helping India stabilize its metrics in the external sector due to the improvement in macroeconomic fundamentals and some of the reformist steps taken by the government.
  • India was the second-highest recipient of foreign capital inflows (including both foreign direct investment and portfolio investments) in 2016.

Way forward

Going ahead, it will be important to bring in more reforms and initiatives to ensure the growth momentum and investor interest continues and at an increasing rate. A very important step in this direction will be structural changes at the state level too so the impact percolates deeper at the local level.

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FAQ about Fragile Five

What Are the Fragile Five countries?

When the term was first established, the original Fragile Five countries included Turkey, Brazil, India, South Africa and Indonesia. In an updated list of 2016, Morgan Stanley named Colombia, Indonesia, Mexico, South Africa, and Turkey. In 2017, S&P Global picked Turkey, Argentina, Pakistan, Egypt, and Qatar as its fragile five because of how negatively these countries were affected by rising interest rates.

How the Fragile Five are picked?

Morgan Stanley selected its first Fragile Five in 2013. They score emerging markets on six factors. They are Current account balance, FX reserves to external debt ratio, Foreign holdings of government bonds, U.S. dollar debt, Inflation, Real rate differential.

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