Fiscal deficit management and debt sustainability are two vital economic themes right now, given that governments across the world have been boosting public spending to reinvigorate their economies. In this respect, two charts immediately grab my attention. These charts appeared in Business Monitor Online earlier today, and in BMI’s weekly Emerging Markets Monitor magazine.

The first is the spread of Turkey’s 5-year Credit Default Swap (CDS) over the Greek equivalent. On the back of Turkey’s recent ratings upgrade and Greece’s credit demotion, the Greek CDS is now trading outside its Turkish counterpart (click on chart below to expand).

This is hugely significant given that Turkey lacks a major institutional policy anchor which the EU provides Greece, and further supports Business Monitor International’s bullish outlook for the Turkish economy. Going forward, I do not preclude further downgrades for Greece, while a favourable outcome for Turkey from ongoing IMF loan negotiations would provide a boost to its risk profile. Thus, the CDS spread could move further in Turkey’s favour.

Also catching my attention is the spread of Chile’s 5-year CDS over its UK counterpart, with Chile now trading inside the UK. As with the case of Turkey over Greece, I see more scope for the spread to move in Chile’s favour. The UK’s budget deficit is ballooning, whereas Chile has been relatively prudent.

The symbolism of these CDS moves is very significant. Essentially, two key emerging markets are now perceived to be less risky than two Western European developed states, at least from a fiscal and debt perspective. Indeed, in many cases emerging markets are becoming more creditworthy than developed countries, which would have been surprising not that long ago.