IIF Authors

Status: Will be live at 10/25/2023 11:18

Principles for Stable Capital Flows and Fair Debt Restructuring: PCG Implementation Note

Despite higher borrowing costs, heightened geopolitical tensions, and volatility in commodity prices, the global economy has proved to be more resilient than expected this year. Although there has been a significant slowdown from the post-COVID rebound levels in 2021/22, global growth is projected to reach 3.0% for 2023/24, well below the historical (2000-19) average of 3.8%. However, economic performance remains quite uneven across regions and countries, reflecting diverging inflation and interest rate trajectories. While most emerging markets and developing countries (EMDCs) continue to grow below trend, growth in EMDCs is expected to remain broadly stable at around 4.0% this year. This resilience is also evident in non-resident capital flows to EMDCs (ex-China), which are projected to increase slightly from some $795 billion in 2022 to near $820 billion in 2023.  This uptick in EMDC flows mainly reflects the recovery in portfolio debt flows. Following a significant contraction in external borrowing by emerging markets over the past two years as financial conditions tightened, the first eight months of 2023 have shown tentative signs of resurgence in international investor appetite for emerging market sovereign bonds. Despite this encouraging improvement in market access (primarily for larger emerging markets) overall issuance volumes remain below pre-pandemic trends, and the ability of low and lower-middle income countries to secure international private market funding has been very limited in 2023 to date, partly due to poor debt management practices in some of these countries.