As rescue gives way to recovery, governments and SOEs are set to play a key role in generating employment and restoring confidence, though this could come at the cost of lower productivity and higher debt levels; Defaults on the rise: the face value of defaulted non-financial corporate bonds has jumped to $70 billion in Q2 2020—the largest on record. U.S. firms account for two-thirds of the total; Some 30 countries have requested support from official bilateral creditors under the G20 Debt Service Suspension Initiative; fourteen of these requests have been approved so far

Lower oil prices, dwindling production, and COVID-19 have undercut hopes for growth in 2020, and turned external and fiscal surpluses to deficits. The medium-term outlook depends primarily on oil price and production recovery, and the continued implementation of structural reforms.

Ukraine has secured a $5 bn, 18-month Stand-By Arrangement with the IMF. This stopgap will help finance fiscal spending and external debt repayments. Improved market conditions will allow Ukraine to build up reserves further. We project an output contraction of 6.9% despite aggressive interest rate cuts. Further structural reform efforts are critical for robust growth going forward.

We are delighted to share this first issue of our new monthly Sustainable Finance Monitor, designed to bring together the latest global developments, analysis of policy and regulatory initiatives, market trends, activities of the IIF Sustainable Finance Working Group and related IIF events. 

The June U.S. Regulatory Update covers recent Federal Reserve reports on regulation and financial stability, new policy measures in response to COVID-19, the Pandemic Risk Reinsurance Program, regulator testimonies on Capitol Hill, and more.

The PBoC can assist fiscal functions by providing necessary liquidity and taking on some quasi-fiscal functions through relending and policy banks. The PBoC may have to support the issuance of special central government bonds. However, the PBoC is not going to explicitly monetize fiscal deficits.

COVID-19 has widened fiscal deficits and spurred needs for additional funding. As a result, QE-type measures have gained impetus amid disinflationary pressure. While countries with sounder institutions can take more aggressive steps, we expect QE to remain modest barring a resurgence of instability. 

Social issues to the fore: growing tensions in the U.S. could undermine efforts to tackle the COVID-19 outbreak;

Non-resident flows to emerging and frontier markets will contract sharply in 2020. Remittances have become an important, countercyclical, source of inflows for EM. In 2020, however, they will likely be much lower due to the global nature of shocks. High-frequency data show that the deceleration had already begun in the 1^st quarter. Central America and the Caribbean, the Philippines, and Egypt are most exposed.