Low Income Countries’ Takeoff Tinkering
The IMF’s April World Economic Outlook kept Sub-Sahara Africa’s predicted GDP growth this year above the 5.3 percent emerging market average as it highlighted poor economies’ “dramatically improved” performance post-crisis and explored whether they had attained the “takeoff” point of per-capita income gains of at least 3.5 percent over 5 years. According to the report developing countries’ medium-term prospects are less favorable due not only to China’s slowdown but supply-side bottlenecks and excess credit expansion. Public debt ratios while below industrial counterparts are rising and have already reached dangerous levels in the Middle East and South Asia. So-called frontier markets in turn lag on the business and investment climate and budget balance from untargeted subsidies, and rely heavily on commodity earnings now on an across-the-board downward cycle. The Fund estimates overall prices will fall 2 percent in 2013 with only metals up while energy and food languish. Natural resource producers have attracted foreign direct and portfolio inflows needed for the breakthrough phase of capital and trade integration but lack the diversification and efficiency strides for a sustained living standard boost. Many are rapidly accumulating debt after a period of official and private forgiveness which could again hurt dynamism as HIPC recipients like Zambia and Bolivia can readily issue external bonds and are now part of JP Morgan’s benchmark NEXGEM index ahead 3 percent through Q1. African weightings outside Cote d’Ivoire are under 5 percent, and the largest constituents for a combined 25 percent are El Salvador and Sri Lanka. Argentina may soon enter as a major chunk as its continued distressed status in the core EMBI brings demotion. The outcome of ongoing litigation is unlikely to restore the minimum 2 percent size for the main index, while a continuing selloff could mar the near double-digit NEXGEM return forecast on gross issuance already over $3.5 billion.
Belize has led the group so far with 85 percent acceptance of its super-bond restructuring for a modest haircut, while Egypt is at the bottom with a 5 percent decline. Jamaica rallied as a 4-year $950 billion IMF accord is to be finalized at the spring meetings following the second local debt exchange since 2009. The local dollar is off 5 percent against the greenback as reserves teeter at the $ 1 billion threshold despite steady remittances. The Dominican Republic has been in the negative column with Fund talks on hold as the government tries to extract more revenue from mining companies and renew its concessional oil facility with Venezuela under presidential successor Maduro. Pakistan has been flat approaching May elections with former strongman Musharraf in the mix, while Ghana and Nigeria both registered a 1 percent advance. Fitch Ratings lowered the former’s sovereign outlook to negative on the 10 percent of GDP-range fiscal deficit, as the latter’s $1 billion Eurobond offer is slated for the coming months with appetite rocketing.
