Entries for 2020

The June U.S. Regulatory Update covers recent Federal Reserve reports on regulation and financial stability, new policy measures in response to COVID-19, the Pandemic Risk Reinsurance Program, regulator testimonies on Capitol Hill, and more.

The PBoC can assist fiscal functions by providing necessary liquidity and taking on some quasi-fiscal functions through relending and policy banks. The PBoC may have to support the issuance of special central government bonds. However, the PBoC is not going to explicitly monetize fiscal deficits.

COVID-19 has widened fiscal deficits and spurred needs for additional funding. As a result, QE-type measures have gained impetus amid disinflationary pressure. While countries with sounder institutions can take more aggressive steps, we expect QE to remain modest barring a resurgence of instability. 

Social issues to the fore: growing tensions in the U.S. could undermine efforts to tackle the COVID-19 outbreak;

Non-resident flows to emerging and frontier markets will contract sharply in 2020. Remittances have become an important, countercyclical, source of inflows for EM. In 2020, however, they will likely be much lower due to the global nature of shocks. High-frequency data show that the deceleration had already begun in the 1^st quarter. Central America and the Caribbean, the Philippines, and Egypt are most exposed.

We assess Ghana’s external financing risk as low compared to regional peers. Eurobond issuance and multilateral support help offset impact of COVID-19. As a result, we estimate only moderate reserve losses of $800 mn in 2020. External debt amortization appears manageable this year and over 2021-22. Outflows could be triggered if deficits grow and/or are financed by the BOG.

Shocked by COVID-19 and the plunge in oil prices, the six GCC states will experience their worst recession in history. However, most GCC public sectors and banks are well positioned to absorb the shocks due to their large buffers and aggressive fiscal adjustments. 

With COVID-19 clouding corporate revenue and earnings prospects, highly-leveraged firms will struggle with debt service; 

Non-resident portfolio outflows from EM have been large, amounting to a five standard deviation shock in March and April.

We now expect an even deeper output contraction of 5.7% in the CEEMEA region. Effects of the COVID-19 shock are increasingly visible in the data for March-April. We downgrade growth in South Africa, the Czech Republic, Ukraine, and Russia. The fall in activity prompted authorities to implement fiscal stimulus measures. Together with cyclical revenue weakness, additional spending will widen deficits. CEEMEA central banks cut rates and some began government bond purchases.