Financial policymakers and asset managers are gearing up for the annual meetings of the World Bank and International Monetary Fund (IMF) in Marrakech, where the fiscal conditions of nations such as Pakistan and Egypt will be closely examined.
The meetings will bring together finance ministers and central bankers from 190 countries for a week of discussions on the global economic risks. These gatherings come amid uncertainties surrounding US fiscal policies and China’s economic slowdown. Emerging economies, including those grappling with the aftermath of extreme weather events and climate change, are facing multiple challenges.
IMF chief Kristalina Georgieva recently highlighted that consecutive shocks since 2020 have resulted in a $3.7 trillion reduction in global output. Furthermore, current economic growth remains well below pre-pandemic levels. She emphasized the need to prioritize the fight against inflation, which would necessitate keeping interest rates higher for an extended period.
Even the IMF itself is feeling the financial strain as it provided approximately $320 billion in financing to 96 countries since the pandemic’s onset. The IMF’s chief called for an increase in the Fund’s lending capacity and urged member countries to take action to boost its quota resources.
JPMorgan’s September investor survey identifies Argentina, Pakistan, and Kenya as countries most likely to face sovereign debt default. Argentina’s economy is grappling with negative reserves, while Pakistan has received a standby agreement from the IMF to bridge its financial gap until the next general election. Fitch notes that Pakistan, along with two other countries, is expected to spend 40% or more of its revenues on debt interest payments next year.
Additionally, the higher interest rates have made it “prohibitively expensive” for single-B sovereigns to access international bond markets since early 2022, according to Gregory Smith, fund manager at M&G Investments in London.
Egypt is considered the most likely country to avoid a sovereign default, according to the JPMorgan survey. However, international financial institutions and multilateral development banks face increasing pressure to enhance lending to poorer nations for development and climate change initiatives. UN Chief Antonio Guterres has repeatedly called for “sweeping reforms” in biased financial systems to ensure that low-income countries vulnerable to climate-related disasters receive sufficient funding from wealthier nations.
