Emerging economies face pressures as IMF, World Bank meet

Pakistan’s finances also under scrutiny during meetings next week

LONDON:

Emerging economies are facing headwinds from all sides, with a recent selloff in US Treasuries and China’s slowing economy adding layers of uncertainty while the Federal Reserve might not have reached the end of its rate hike cycle.

Restructuring efforts for defaulted countries could reach a breakthrough before year-end as talks continue, while the finances of nations like Pakistan and Egypt will also be under scrutiny when policy makers and asset managers gather for the World Bank and International Monetary Fund (IMF)’s annual meetings in Marrakech next week.

“The external backdrop does remain challenging for emerging and frontier markets across the board and that’s out of their control,” said Joseph Cuthbertson, senior sovereign analyst at PineBridge Investments. “It very much depends on the pace and timing of a Fed pivot.”

China slowdown

China’s debt-fuelled investment in infrastructure and property has peaked and exports are slowing in line with the global economy.

Demand for commodities will be hit as the world’s second-largest economy spends less on goods and services.

Next dominos

Argentina, Pakistan and Kenya top the list of nations that might face a sovereign debt default, according to JPMorgan’s September investor survey.

The South American economy’s reserves are negative and it has to pay back a record $44 billion IMF loan that is off track, with a presidential vote looming on Oct. 22.

The Fund has provided Pakistan a bridge loan that should help tide the country over until the January general election.

Egypt, Pakistan and Nigeria - whose president is struggling to implement long-sought reforms - will spend 40% or more of revenues on debt interest payments next year, according to Fitch.

Published in The Express Tribune, October 7^th, 2023.

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