Entries for 2021

The increase in commodity prices in 2021 is feeding through to EM headline inflation Energy and food account for larger shares of consumer baskets in EM relative to DM. Despite higher import prices, headline inflation in EM has only increased moderately. Inflation expectations also appear anchored due to improving central bank credibility.

The economy has not grown since 2018, as deteriorating confidence stifled investment. We estimate that the weakening business climate directly reduced GDP growth by >=0.5 pp a year from 2017 to 2019. Harnessing global tailwinds to avoid a return to secular stagnation will require improved policies. 

The vaccine program and higher oil prices will support the recovery. Speakers agreed that significant progress has been made in implementing the kingdom’s economic and social reform agenda. However, they underscored the need for deeper structural reforms to support diversification and growth. 

Sub-Saharan African countries will receive an estimated SDR16.2 bn in 2021Q3. While this will increase holdings markedly, it represents a small share of the total. We assess the impact of the allocation in four areas and find it relatively limited. For most of SSA’s largest economies, reserve adequacy will improve marginally. Respective allocations are also too small to fundamentally affect financing needs.

High and rising sovereign debt levels have greatly increased the likelihood of further debt strains; Better sovereign debt crisis prevention and resolution is needed to reflect fundamental market changes in recent years; We believe that efforts to strengthen existing mechanisms should center on improving debt transparency, regular and meaningful private-public sector dialogue, and integrating ESG/SDG considerations—all will help borrowers’ market access.

As the global economy is recovering from the COVID-19 shock, so are many EM. Alongside, inflation has picked up, prompting many central banks to respond. Still, headline and core inflation remain well-behaved in historical comparison. Higher rates mean some EM could find it increasingly difficult to finance debt.

Transparency around sovereign debt obligations remains limited, particularly for emerging and developing economies; International financial institutions could help by making more granular debt data available to the public; Greater clarity around the process, terms and conditions of sovereign debt restructuring would also support debt transparency.

Costa Rica has secured an IMF Extended Fund Facility agreement, as COVID-19 has intensified ongoing fiscal woes. However, significant reform progress seems challenging ahead of the February 2022 elections, and higher interest rates would exacerbate the already-demanding adjustment. 

Ukraine has weathered the COVID-19 shock well compared to previous crises. We assess balance of payments risks in the next 6-9 months as relatively low. Ample reserve assets and the planned $2.7 bn SDR allocation are key factors. However, a new IMF arrangement will be critical for medium-term prospects. Without IFI support, the external financing gap could reach $4.5 bn in 2022. Risks stem primarily from insufficient progress regarding structural reforms.