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.
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.
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.