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.
Lebanon once again is at a crossroads. Painful measures are needed in difficult situations, and achieving fiscal sustainability, rebuilding confidence, and preserving the peg to the dollar inevitably will re-quire strong adjustment.
Loose monetary and fiscal policies have led to the build-up of macroeconomic imbalances. The IMF deal of $6bn will be adequate only with additional foreign inflows and significant rollovers. Decisive policy action and substantial external financing will be needed to achieve macroeconomic stability.
We do a balance of payments forecast to assess the funding gap for Ukraine. Ukraine needs a follow-up IMF program of $2 bn under benign assumptions. Political impasse is a key risk due to parliamentary elections in October.
External imbalances are headwinds facing the fast-growing economies of Indonesia and the Philippines. We have a constructive view of the CADs in these economies as investment has been an important contributor. Reliance on portfolio and other foreign inflows is the key risk.
Argentina’s bailout involves tough fiscal adjustment. Many fiscal measures have been implemented so far, but adjustment needs to be deeper and long lasting. Some IMF programs delivered similar adjustment, but many fell short of what Argentina is aiming for. Few EMs kept a tight fiscal stance for many years.
Oversupply and weak demand have weighed on real estate prices since 2014. Vulnerability stems from an unrealistic economic model amplified by adverse external factors, with detrimental effects to growth and financial stability. However, policy responses may slow the pace of future price declines.
Current account deficits in Frontier LatAm remain wide and are largely dependent on remittances and oil prices. While high FDI helps cover external financing needs, debt buildups have been significant in some countries, increasing external vulnerability amid limited buffers.
Colombia’s current account deficit was wide in 2018, despite depreciation since the oil price shock of 2014-15. We think deficits are largely driven by structural forces.Colombia’s external vulnerability will likely remain.
Our activity tracker slowed markedly in 2018, but has been broadly stable since September. Tariffs played a limited role in the slowdown, but are finally taking a toll on tradable sectors. Credit-intensive sectors are turning around, suggesting China’s policy stimulus still works.
Increasing international reserves provide a buffer, but inflows excluding official support are still weak. Amortization is lower in 2019 but still sizable and renewed domestic capital flight remains a risk.