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.
Nigeria is increasingly reliant on expensive “hot money” flows. Non-residents are flocking to central bank auctions of CBN bills. Nigeria leads the region in Eurobond issuance, at a high cost. With non-oil revenue below 4% of GDP, risk of crowding out is high. Weak oil production and low prices weigh on the current account.
Recent attacks on Saudi oil facilities led to the worst supply disruption in last 50 years. Aramco’s full return to normal crude oil production may take more than a few weeks. The impact on the Saudi economy includes a small contraction in overall real GDP and a wider fiscal deficit.
Colombia’s current account deficit is still widening, despite depreciation since the oil price shock of 2014-15. High FDI mitigates financing risk to some extent, but external funding needs are high relative to reserves. Foreign bond holdings rose fast compared to GDP, but aren’t unusually high relative to bond index weights.
Promoting nonhydrocarbon growth and diversifying away from traditional sectors remain key challenges. We expect nonhydrocarbon growth to reach 1.9% in 2019 and 2.2% in 2020, aided by stimulus in Abu Dhabi and Expo 2020-linked spending in Dubai, but then recede. More emphasis on innovation is vital.
Portfolio flows to Russia are weakly correlated with global flows, likely due to sanctions. Despite the risk of further sanctions, government debt remains attractive to investors, as Russia stands out among EM due to exceptionally low macroeconomic vulnerabilities. In the long run, sanctions can lead to less prudent policies and reduce growth prospects. We expect discussions of Russia sanctions in the US Congress to pick up again in the fall.
We have long argued Argentina’s program is too small, given our estimates for the country’s external funding gap. The principal drivers of that gap are debt amortization and – to a large and rising extent – resident capital flight. Debt reprofiling is unlikely to change these numbers.
Borrowing costs have fallen sharply as a result of policy changes. Lending remains subdued due to concerns over bank asset quality. Credit-fueled growth has increased private sector indebtedness. Banks remain well-capitalized and profitability is set to increase.
Low breakeven oil price for the current account provides buffer against shocks. Introduction of the fiscal rule in 2017 has led to significant reserve accumulation. Debt repayments spiked after the 2014 sanctions but are now less of a concern. However, private sector capital outflows have picked up and may accelerate. Portfolio inflows have returned but are sensitive to sanctions announcements.
China’s $2 trillion external liability seems large, but is manageable given China’s GDP, exports, and foreign assets. FDI loans, trade credits, and bank deposits are relatively sticky. China’s external debt overhang should be a minor concern for BoP and RMB depreciation.
Lebanon’s economy is at a turning point. Despite the recent downgrades we still believe that Lebanon will not default given its sizable international reserves, robust banking system, and a track record of having never defaulted on foreign-currency debt.