Progress is being made on fiscal adjustment and structural reforms. The sharp fall in oil revenues will exceed the cut in public spending, leading to a large fiscal deficit. Strong adjustment and partial recovery in oil prices could make the fiscal position more sustainable. 

More than half of global GDP is nature-dependent, but ecosystem collapse is a risk in a fifth of all countries. Despite the financial materiality of ecosystem risks, financial institutions lack a nature-related risk disclosure framework.

We forecast a modest activity upturn in 2021 from a deep recession this year. Mexico, Argentina, and Peru are set to suffer the largest output contractions regionwide. A weak global backdrop, pre-existing challenges, and eroded policy buffers could complicate the recovery.

We expect a stronger recovery in capital flows to Asia relative to other EMs in 2021. FDI remains an important driver, with India and Indonesia as the largest recipients. Relatively robust inflows and c/a adjustments in ‘20 allow for reserve accumulation. A reemergence of COVID-19 and geopolitical factors are the key risks to the outlook.

Gross external financing needs of DSSI-eligible countries are set to remain high at over $260bn (12.5% of GDP) in 2021; General government debt in DSSI-eligible countries is projected to peak at 56% of GDP in 2021—up from 50% in 2019

We expect a slow and uneven recovery in non-resident capital flows globally. CEEMEA should fare somewhat better with a broad pickup in ‘20H2 and ‘21. The recovery will likely be driven by stronger FDI and portfolio capital flows. A possible COVID-19 resurgence and geopolitical risks weigh on the outlook. If sentiment worsens, Turkey, South Africa, and Ukraine will be most exposed.