Entries for 2020

Exchange rate flexibility has eased the adjustment to COVID-19 in most large countries. However, “fear of floating” is still high across Central America and the Caribbean. While local market financing is increasing, countries have largely had to borrow in hard currency to help withstand the shock.

The Supplementary Budget Review shows higher deficits and quickly rising debt. Nonetheless, foreign investors returned in May and yields have fallen sharply. A credible consolidation strategy is needed in October to sustain investor interest. Plans hinge on cuts to non-interest spending that will be difficult to implement.

After a challenging Q1, emerging and frontier market international bond issuance picked up significantly in Q2. High yield sovereign borrowers have been accessing the market; borrowing costs are well below peak Q1 levels. We see robust issuance in most emerging and frontier markets, though sub-Saharan African borrowers are notably absent.

Growth will slow down sharply to 0.9% in 2020 as a result of the global recession. Lower oil prices will help offset a decline in exports and collapse of tourism revenues. Support from multilaterals should keep reserve losses manageable at around $1.5 bn. The main downside risk for external financing is a sharp rise of oil prices in 2020H2. Furthermore, a steeper decline in non-resident FDI would be a source of concern.

Rising debt levels amidst COVID-19 may constrain capacity for investment in climate change mitigation and SDGs; A green recovery is critical to reduce emissions but also to boost job creation: $1tn annually in green energy investment could create 9 million jobs in three years, while reducing emissions by 15%; Some $11 trillion in global fiscal stimulus has been approved, but less than 1% of this pandemic response is “green”; The European Commission’s €750 billion budget proposal is by far the largest green package — but faces several obstacles in obtaining approval in European Council negotiations next month

EM are experiencing an unprecedented and synchronized growth slowdown in ‘20. Restrictions remain in place in many countries, as the health crisis is far from over. The fiscal response has been uneven in EM, with some running out of policy space. Most EM central banks cut rates aggressively, and QE has become part of the toolkit. Asset price recovery and a modest return of capital flows should provide support.

The June edition of the Insurance Update provides targeted updates on IIF insurance activities and events, and highlights relevant IIF publications or related regulatory developments in other fields.

This IIF Staff Paper examines what the European Council will prioritize in the second half of this year. Although Berlin had drafted an ambitious program – transitioning to a greener economy, boosting digitalization, reforming migration policy and redefining the bloc’s relationship with the UK as well as China – the German Presidency will now instead prioritize tackling the challenges of the COVID-19 pandemic.