Elections may end attempts at orthodoxy in Argentina

Significance Lower spending and a contraction in the monetary base have helped reduce the gap between the official and informal exchange rates and devaluation expectations. The government also came to an understanding with the Paris Club to extend debt-restructuring talks, thus averting a new default. Impacts A poor electoral result for the government could see a shift to more expansionary policies thereafter. Fiscal and monetary discipline, unusual in an election year, reflects the Peronist party’s ability to control unions and social movements. In 2022 the government will focus on restructuring debt with the Paris Club and the IMF, but prospects for structural reforms are poor.

Argentine Paris Club deal aims for pre-election calm

Headline ARGENTINA: Paris Club deal aims for pre-election calm

Republic of Madagascar

A further deterioration of the global environment and a deepening of the impact of the COVID-19 pandemic have worsened the macroeconomic outlook significantly, with growth now projected to be negative in 2020. As a result, urgent balance of payments needs arising from the pandemic are now estimated at 4.2 percent of GDP (compared to 1.8 percent), and the authorities have requested an additional disbursement under the Rapid Credit Facility (RCF) of 50 percent of quota (SDR 122.2 million) under the “exogenous shock” window of the RCF. This follows Board approval on April 3, 2020 of the authorities’ request for 50 percent of quota, which took place before the annual access of the RCF was doubled to 100 percent of quota on April 6, 2020. This additional request, if approved, will bring total disbursements under the RCF to 100 percent of quota in 2020. The authorities have also requested temporary debt servicing relief under the G-20 Debt Service Suspension Initiative, supported by the G-20 and Paris Club.

More developing countries will face debt distress

Subject EMDC debt distress. Significance COVID-19 has triggered a global economic crisis, surpassing the declines caused by the 2008-09 global financial crisis. Massive fiscal packages have been launched to mitigate the health impact and economic disruption, pushing government debt sharply higher worldwide. The debt burden is particularly onerous in many emerging markets (EM) and low-income countries (LIC). The reckoning will come when the pandemic subsides and investors scrutinise the debt sustainability of different countries. Impacts Currency weakness will raise foreign currency debt repayment costs while lower GDP will erode tax income, squeezing budgets in EMDCs. Weak healthcare and fiscal constraints will make indirect COVID-19 impacts harsher than direct effects for many EMDCs. EMDCs owe large sums to private creditors and non-Paris Club states such as China; these actors' approach is key to coordinated debt relief.