Entries for 2021

Frontier Sub-Saharan Africa is emerging from the pandemic shock, but growth is comparably weak. We project a strong pickup in non-resident capital flows to $56.1 bn in 2021 from last year’s $23.6 bn. The recovery in FDI is robust, but persistently higher investment will be needed over the medium term. Financial conditions remain favorable, and strong Eurobond issuance drives the rise in portfolio flows. IMF emergency financing in 2020 and this year’s general SDR allocation have provided critical support. Assistance from IFIs will continue going forward, albeit at lower levels and with stronger conditionality. In addition, external financing needs are set to rise as substantial Eurobond amortization looms large. Thus, the region will need to attract higher and less volatile inflows to reduce external vulnerabilities. External financing risks are highest in Ghana, where market concerns over the country’s dent are rising. Angola and Nigeria are under less pressure, while IMF programs should help Kenya, Senegal, and Zambia.

The recent financial distresses among Chinese property developers are inevitable given the excessive leverage and tightening real estate policies. Careful resolution of developer debts is needed to ring fence risks while minimize moral hazards. 

Global sustainable debt issuance surpassed $1 trillion during the first three quarters of 2021 and is now on track to reach almost $1.5 trillion in 2021

EM are traditionally exposed to swings in global risk sentiment and reflation concerns. However, the increase in DM rates has had a muted effect on EM credit so far in 2021. Concerns earlier in the year over a possible “Taper Tantrum” 2.0 proved not justified. This contrasts with past stress episodes when EM spreads reacted substantially more. The muted response is likely due to still supportive policy stances by DM central banks. External vulnerabilities are also lower due to still-favorable current account dynamics.

El Salvador’s risk premium has skyrocketed amid financing shortfalls and governance issues. A vigorous growth rebound has aided the fiscal balance, but the 2022 proposed budget projects optimistically large gains in tax administration. Financing options are narrowing as IMF negotiations drag on. 

The October 2021 Global Regulatory Update provides updates on current work streams. 

The Key Regulatory and Policy Discussion Summary covers relevant topics discussed at the 2021 IIF Annual Membership Meeting (AMM), including prudential regulation, regulatory fragmentation, sustainability, digital finance, financial crime, insurance, and more. 
 

ESG and sustainable finance themes were in focus at last week’s IIF Annual Membership Meeting; Tackling climate change requires a major surge in green R&D investment to reduce reliance on carbon-intensive activities; A broadly-agreed mechanism for carbon pricing would help decision-makers better assess both climate risks and opportunities; International financial institutions could play an even larger role in promoting ESG market development in emerging markets

We project moderate current account deficits despite strong imports. Nonresident capital flows will rebound this year, particularly in Brazil and Chile, and foreign reserves will improve supported by IMF SDR allocation. We see capital flows gradually slowing amid tighter global liquidity conditions.

We have revised our 2021 growth outlook for ASEAN+ from 4.5% to 3.6%. This is mostly due to lockdowns weighing on manufacturing and services. However, ASEAN+ countries have more policy space to respond to shocks. Non-resident capital flows are projected to rebound this year to $228 bn. FDI and portfolio debt are key drivers but 21H2 will likely see a slowdown. Nonetheless, we expect flows above pre-pandemic levels in 2021 and 2022.