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.

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.

Sub-Saharan Africa continues to display stronger growth than other EMs. However, this has not resulted in meaningful real convergence for most. Continued high, though declining, population growth is partly responsible. Higher productivity growth is necessary to improve living standards quicker. Rising indebtedness represents the key risk to the medium-term outlook.

China’s SOEs are often criticized for being inefficient and highly leveraged, but the performance gap between SOEs and privately-owned companies is smaller than many think. SOEs gained advantages during the Supply-side Reform, while private companies have lost more to the trade war. 

U.S. sanctions have almost wiped out Iran’s ability to sell crude oil, pushing the economy into recession for a second year and spurring the authorities to increase taxes and cut subsidies. While they are reluctant to renegotiate the nuclear deal, the country's medium-term potential is considerable.

We are expanding our capital flows data to include derivatives, starting with an analysis of non-resident currency forwards in Chile. On aggregate, non-residents are usually short CLP via forwards. The correlation between forwards and capital flows isn’t very strong. Recent drops in carry did not result in a shorter forward position.

Structural impediments remain unaddressed and constrain near-term growth. Low growth is the main reason for revenue underperformance and rising debt. Credible fiscal consolidation could improve business and consumer sentiment, paving the way for real GDP growth to pick up to around 2% in the medium term.

Ukraine’s new agreement with the IMF is critical for external financing, even though recent flows into domestic bonds have alleviated pressure. The agreement signals confidence in ongoing reform efforts to markets, and will lead to renewed investor interest in local government bonds.

Five months into the IMF’s $6 billion EFF program, Pakistan’s progress looks better than anticipated. • We expect official reserves to continue recovering as the current account narrows and capital inflows improve. However, gross external financing needs at around 9% of GDP warrant caution.