The export channel from devaluation remains a positive force for EM one we think is underappreciated at the current juncture.

Zambia has launched consent solicitation for a deferral of bond payments. Kwacha depreciation is the main driver of unsustainable debt dynamics. In a no-adjustment scenario, public debt could reach 200% of GDP by 2025. Upcoming general elections in August ’21 contribute to policy uncertainty.

The November 3, 2020 election featured a series of such referenda, including four that relate to data and digital policy topics.

The outlook for tourism remains challenging as COVID-19 infections are rising again. Together with capital flows dynamics, this could require significant BoP adjustments. Import compression should contribute but reserves will likely remain under pressure. Tourism will likely not fully recover in 2021 and external stress on some EMs persist.

Sovereigns are increasingly tapping capital markets to finance fiscal deficits. Private inflows to the MENA region continue to be dominated by Saudi Arabia, the UAE and Qatar. Resident outflows are declining but still exceed inflows. FDI remains subdued and concentrated in the energy sector. 

With the G20 Finance Ministers and Central Bank Governors meeting in October, a series of official sector reports were released on various digital finance topics.

DSSI-eligible SSA countries have not tapped capital markets during the pandemic. However, roughly half of these countries have continued to attract net banking inflows. Large revenue losses have brought the government debt-to-revenue ratio to a staggering 480% in 2020.

We project a real GDP contraction of 7.5% in 2020 and a modest rebound in 2021. Tourism remains depressed, but remittances have surpassed pre-COVID-19 levels. SLV, JAM, and PAN are set to endure the steepest recessions, while GTM should contract the least due to its stable macroeconomic framework. 

In the October MTBPS, the government increased deficit targets again. This will result in a steeper rise and higher peak of government debt. We see substantial risks to both revenue and expenditure projections. Additional budgetary support to troubled SOEs also looks likely in ‘21.

Many emerging markets have worked hard to improve investor relations practices, helping to support the massive expansion of the EM debt universe--from $5 trillion in 2005 to over $23 trillion in 2020.

The coming decade could see a surge in government debt ratios in a reflationary environment—a sharp contrast to the austerity bias of the last decade; high and rising debt levels make investor relations a top priority for emerging markets.

Tourism will likely be among the last sectors to recover from the COVID-19 shock. The recovery has been slow and uneven, and further warning signs are emerging. We continue to expect a 60-70% drop in tourism revenues in our baseline scenario. Rising infections in the United States and Europe may require renewed lockdowns. Countries like Mexico, South Africa, Thailand, and Turkey would be most affected.

The Hong Kong Autonomy Act (HKAA) stipulates potentially highly damaging sanctions. At the extreme, the U.S. may disconnect China’s banks and corporates from the U.S. Dollar. Should the conflict escalate, we worry about unintended consequences for global markets.