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Scavenging for Treasure at the IMF Spring Meetings
Members of the emerging markets debt investment community descended on Washington DC last week for the spring IMF meetings. Over the course of the week, the EMsights team conducted over 100 meetings and actively engaged in conversations with a diverse range of government officials and representatives.
Given the sell-off in emerging markets debt year to date, we entered the week expecting a decidedly bearish mood, though we were surprised to find a rather neutral outlook overall. In fact, the IMF slightly raised its global growth forecast for 2024 to 3.2%, up by 0.1% from its January projection. This upward adjustment is driven by expectations for a slight acceleration in advanced economies. While growth projections for emerging market and developing economies have also been revised upward since January, these regions are now expected to experience a modest slowdown in 2024 compared to 2023.
As always, country fundamentals remain our primary focus. Here are some highlights from the week:
Turkey Remains Committed to Taming Inflation:
The Central Bank of the Republic of Turkey (CBRT) was humbled by the higher-than-expected CPI prints of the past two months (which they responded to with a 500 bps hike) but feel disinflation is still very much achievable with tight policy. The Ministry of Finance has pledged to be supportive of the disinflation process, saying it is the number one priority.
Refreshing Reforms in Egypt:
Egypt’s fortunes have experienced a large shift from this year to last, with 2024 bringing a welcomed lifeline in the form of an extremely large foreign investment from the United Arab Emirates in the midst of geopolitical and financial stress. The capital flow of USD 35 billion, plus additional support from the IMF, EU, and others has allowed policymakers a pressure valve to clear a large import backlog, devalue the official exchange rate to parity with the black market, and replenish strained international reserves and budget accounts. In meetings this week we looked for signs that future policy decisions will prevent Egypt from falling back into the financial predicament from which it just emerged. Welcomed initiatives discussed included limits on overall government projects, commitments to broaden fiscal transparency, and a generally more open tone on monetary policy.
Bright Spots Across Latin America:
In Uruguay, projected GDP for 2024 appears promising, despite the economic setback caused by a significant drought in 2023. The labor market is strong, FDI is running at around 5% of GDP (more than covering the current account deficit), the government met the 3 pillars of their fiscal rule for the fourth year in a row in 2023, and the new monetary policy regime has seen CPI reach its lowest level in almost 20 years. General elections are coming up in October and we will soon know if the elections will include a plebiscite on a potential reversal of a fiscally prudent social security reform passed last year (which is one of the main risks to track).
The Dominican Republic continues to show solid macro fundamentals: CPI is under control and within the target range of the Central Bank, economic activity has been strong this year led by impressive tourism figures, the fiscal deficit is contained, and external accounts are healthy. President Abinader will seek to win reelection in May and all polls point towards him achieving this. Keys issues to monitor in a second Abinader administration will be a possible introduction of a tax reform, Congress passing the fiscal responsibility law that was presented many months ago, and improvements to the electricity sector Abinader promised in a business forum some weeks ago.
Scavenging For Treasure:
Despite the potential for gloom in this round of meetings, we uncovered several positive country stories. Emerging economies are managing their debt and fiscal policies with varying levels of credibility, lending to increased dispersion within the universe. While we remain cognizant of the challenging macro backdrop, we will continue seeking to capitalize on such opportunities when we identify them.
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