Entries for 2020

The debate on U.S. sanctions on sovereign debt is expected to continue in '20. Low macroeconomic vulnerabilities will likely limit the impact on Russia. U.S. investors would lose out given investments in Russian domestic debt. Unintended consequences could also significantly shake up global markets.

Portfolio flows to EM stood at $28.9 bn in January. Equity and debt were -$0.7 bn and $29.7 bn, respectively. Net capital flows to EM reached -$33.1 bn in December.

Large amortization payments will leave Turkey exposed to rollover risk in 2020. The composition of amortization payments should alleviate some of the concerns. Net foreign borrowing will continue to be an important determinant of growth. Residents could withdraw from assets abroad if they fail to roll over maturing debt.

As ESG investing goes mainstream, the potential “carbon correction” in asset prices may prompt sizable capital reallocations; Achieving the SDGs will require more private sector funding, but better ESG data is needed to inform investment decisions; Low-income countries tend to be more vulnerable to climate shocks—but rising debt loads constrain their capacity to respond; Beyond climate in the “E” of ESG—more focus on financing to support biodiversity

South Africa and Mexico face significant fiscal risks from struggling SOEs. Both Eskom and Pemex are receiving sizable support from governments. Such risks prompt SARB and BANXICO to keep real rates above EM peers. A downgrade of sovereign credit ratings could lead to large portfolio outflows. However, risks to debt sustainability are higher in South Africa than Mexico.

The January 2020 IIF Global Regulatory Update provides updates on current work streams.

Argentina introduced capital controls last summer. We draw lessons from the 2011-15 controls episode. Capital flight fell and the central bank bought FX, but reserves were spent absent nonresident inflows. Capital controls will only buy temporary respite.

The formation of a government based on a "cabinet of experts" raises the chances of reforms that could arrest the country’s downward economic spiral and facilitate access to already-pledged concessional loans. However, restoring growth will require additional capital inflows from official sources. 

This month's topics include:

• IIF response to IAIS Consultation on Liquidity Risk Management
• IIF IRC Meeting - February 26 

Fiscal consolidation has been tempered by political reality. Revenue shortfalls and rigid spending could raise funding needs. Financing relies heavily on timely disbursement by official creditors.

As the “decade of sustainability” gets underway, calls for action on climate change will become increasingly strident; With electricity demand soaring, a rapid shift to low-carbon alternatives is needed to achieve net zero emissions by 2050… …but in the EU (and beyond) nuclear power remains contentious, as growth in renewables can't keep up with demand
 

Government debt in Sub-Saharan Africa has risen markedly in recent years. This is partly due to issuance of Eurobonds in a low interest rate environment. Debt amortization will peak in 2024-25, while financing needs remain high. As a result, these countries will need to attract significant non-resident capital. Tightening of global financial conditions could increase debt costs substantially.