The IIF covers 30-40 emerging and frontier markets, with a particular focus on economic and financing issues. Our reports feature topical analysis of macroeconomic fundamentals, policy developments, political economy dynamics and downside risks.
The US and EU have introduced numerous financial sanctions on Russia. The first episode of multilateral sanctions in 2014 had the biggest impact. Limiting investor access to the Ruble market (OFZ) is unlikely to be as severe. Existing sanctions will weigh on investment, productivity, and growth.
Portfolio investments will be the main driver of foreign capital inflows increase to Saudi Arabia in 2019. Supported by the MSCI upgrade, Saudi Arabia has attracted $18 billion in foreign equity inflows so far this year.
We analyze external adjustment in Colombia, Peru, and Chile, commodity exporters with sound macro policy frameworks, in the aftermath of the decline in commodity prices. Despite real depreciation, exports have improved only modestly, with most of the adjustment due to significant import compression.
Strong investment growth is a prerequisite for Indonesia to grow faster than 6% per annum. The global commodity cycle, competitive external investment environment, and limited policy stimulus are potential headwinds to a meaningful pick-up in investment.
CCA countries have diversified their economic linkages. The EEU and the Belt Road initiative serve as channels for Russia and China to exert influence. While Russia remains a key partner with respect to trade, labor markets and FDI in some countries, China's prominence is increasing markedly.
Robust growth has returned, driven by consumption. Non-resident inflows have led the Hryvnia to appreciate. A new IMF program is expected by the end of the year. The key risk to the outlook is potential for policy inaction. Public debt appears sustainable, assuming FX stability.
Resident outflows were a source of pressure in 2018. They are unlikely to abate as the election approaches since Argentina’s electoral cycles often prompt outflows. We are far from the outflows seen in the 2001 crisis, but the external funding picture will remain tough given limited resources left under the IMF program.
Egypt has successfully completed the 3-year EFF arrangement with the IMF. Growth has accelerated, unemployment has decreased, the twin deficits have narrowed, core inflation has fallen, and the public debt ratio has started to decline.
Zambia borrowed extensively from abroad after 2015, leading to considerable external financing requirements. Fiscal and monetary policy will have to be contractionary, however, the level of adjustment needed is very large. Thus, Zambia is a prime candidate for an IMF program.
US tariffs should be imposing a strain on China’s balance of payments, most obviously in the current account. But the surplus is rising, in part due to quite healthy exports. Instead, trade tensions may be manifesting in capital outflows, which are above 2012 levels and half 2015/6 levels. Tariffs may be raising RMB depreciation expectations, an issue of great importance to China’s policy makers and the rest of EM.