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.
Ukraine has secured a $5 bn, 18-month Stand-By Arrangement with the IMF. This stopgap will help finance fiscal spending and external debt repayments. Improved market conditions will allow Ukraine to build up reserves further. We project an output contraction of 6.9% despite aggressive interest rate cuts. Further structural reform efforts are critical for robust growth going forward.
The PBoC can assist fiscal functions by providing necessary liquidity and taking on some quasi-fiscal functions through relending and policy banks. The PBoC may have to support the issuance of special central government bonds. However, the PBoC is not going to explicitly monetize fiscal deficits.
COVID-19 has widened fiscal deficits and spurred needs for additional funding. As a result, QE-type measures have gained impetus amid disinflationary pressure. While countries with sounder institutions can take more aggressive steps, we expect QE to remain modest barring a resurgence of instability.
We assess Ghana’s external financing risk as low compared to regional peers. Eurobond issuance and multilateral support help offset impact of COVID-19. As a result, we estimate only moderate reserve losses of $800 mn in 2020. External debt amortization appears manageable this year and over 2021-22. Outflows could be triggered if deficits grow and/or are financed by the BOG.
Shocked by COVID-19 and the plunge in oil prices, the six GCC states will experience their worst recession in history. However, most GCC public sectors and banks are well positioned to absorb the shocks due to their large buffers and aggressive fiscal adjustments.
We now expect an even deeper output contraction of 5.7% in the CEEMEA region. Effects of the COVID-19 shock are increasingly visible in the data for March-April. We downgrade growth in South Africa, the Czech Republic, Ukraine, and Russia. The fall in activity prompted authorities to implement fiscal stimulus measures. Together with cyclical revenue weakness, additional spending will widen deficits. CEEMEA central banks cut rates and some began government bond purchases.
Capital inflows to the MENA region will remain high despite the global backdrop. We expect the plunge in oil prices and widening fiscal deficits will lead to a decline in private non-resident capital flows to oil importers, but will be partly offset by higher official flows.
Russia’s assets are stabilizing, and investors are showing renewed interest. The “Fortress Russia” strategy has reduced macroeconomic vulnerabilities. We expect both the fiscal and monetary policy responses to remain modest. As the economy is set to reopen, COVID-19 infections continue to spread.
Zambia’s external financing picture will continue to deteriorate in 2020. Sharply lower commodity prices will be a drag on the current account. At the same time, external debt repayments are set to increase markedly. As a result, already low foreign reserves are likely to fall even further. Additional external support of $0.5-1.0 bn would likely stabilize reserves.