The economy is stabilizing, with fiscal adjustment in line with IMF program targets. Rapid vaccination rollout and subsequent reopening have contributed to ongoing recovery, and EMBIG spreads have dropped sharply. Tough political negotiations are key to move forward with the ambitious reform agenda. 

External financing stress should be moderate in the coming months. Support by the IMF and EU, and the 2021 SDR allocation play a role. As do positive terms of trade and successful placement of Eurobonds. The IMF program’s extension to mid-2022 was of critical importance. Key risks are de-anchored inflation expectations and reform reversal. Furthermore, the conflict in Eastern Ukraine could escalate further.

High oil prices since end-2020 are largely driven by pervasive supply shortages from the lack of adequate investment. Current futures contracts point to Brent average oil prices of $73/bbl and $69/bbl in 2022 and 2023, respectively. 

Nearly 20 countries are pursuing hydrogen strategies to help curb emissions, with another 20+ poised to follow suit; Current hydrogen production processes are carbon-intensive, creating 900Mt of CO2 emissions/year—2.5% of all emissions; “Green” hydrogen produced with zero emissions can help decarbonize heavy industry, transportation, and power generation; High (but declining) costs of electrolyser equipment and renewable energy are the chief obstacles for scaling green hydrogen.

Favorable commodity price dynamics will drive up current account surpluses. Russia will also be among only a few countries without fiscal deficits in 2022. Inflation remains the key concern and we expect the CBR to continue hiking. Geopolitics continue to play a major role with new U.S. sanctions a possibility. However, Russia appears well-prepared to withstand their potential impact.

Central banks project that the transition to net-zero emissions will be inflationary, especially over the course of the next decade; “Greenflation” could be even higher, as the need to rapidly scale up infrastructure investment may boost commodity prices; Climate hazards put upward pressure on food prices, while greening agriculture may trigger unfavorable food price dynamics; Projected global oil capex shortfall of $600bn to 2030: underinvestment could mean supply-demand imbalance, higher prices; Persistently insufficient green R&D means that non-carbon energy alternatives will remain expensive as uptake increases.

Nigeria’s exchange rate regime and FX shortages remain among the key issues. The Naira has come under renewed pressure in the parallel market in 2021Q3. We expect the CBN to undertake another step devaluation in the coming months. NDFs indicate that the currency could rise to NGN470/$ by the end of next year.

The November 2021 edition of the Insurance Update provides targeted updates on IIF insurance activities and events. 

China’s total foreign assets doubled in the past 11 years to $9 tln by mid-2021. However, considering the size of China’s GDP and the investments in its own assets in HK, China’s financial integration with the world still has a long way to go.