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Emerging Perspectives

Views on frontier markets from the IMF spring meetings

25 April 2018

By Thys Louw, Assistant Portfolio Manager

We recently attended the International Monetary Fund (IMF) spring meetings in Washington D.C. We had the opportunity to engage with various policymakers, investors and IMF representatives across frontier markets. The experience left us with the impression that the recent performance divergence across frontier local and hard currency markets could continue given the spectrum of fundamentally differing credit stories.

Signs of strength and stability

These are countries generally under an IMF programme or alternatively where we have seen a dramatic and sustained improvement in imbalances which we expect to continue over the next 6-9 months. Countries in this group included Ghana, Egypt, Nigeria, Ivory Coast, Georgia and Mongolia.


Ghana remains supported by an IMF programme, and benefits from strong group of competent technocrats within its government. Growth looks like it will remain strong, while increased oil production will help limit the impact of any increase in growth related imports on the current account. In addition, declining interest rates will also help the deleveraging process.

  • What to watch out for – GDP rebasing which could see 20% revision in GDP making debt to GDP look more benign; Ability to raise non-tax revenues


Egypt remains a favourite among investors and the IMF alike. It is performing well under the IMF’s US$12bn programme and ‘green shoots’ of growth are appearing.

The primary fiscal (government annual budget) balance is expected to move towards a 2% surplus in 2019, while exports from the Zohr gas field will help sustain improvement in the current account.

  • What to watch out for – Micro-reforms to help kick-start the private investment cycle; Risks of social unrest in case youth unemployment is not addressed


After a tough few years, the worst seems to be over for Nigeria, at least in the short term. With oil prices above US$65 and oil production stable, the country is now running a sizeable current account surplus. Meanwhile, declining inflation will allow the central bank to ease rates over the coming year. Although structural issues remain, the country now has the opportunity and firepower to support the economy.

  • What to watch out for – General elections in February 2019; Unrest in the Niger delta hurting oil production

Signs of improvement

There were several countries where after a period of deterioration in credit metrics we are starting to see signs that data might start to surprise to the upside once again. Countries in this group included Argentina, Costa Rica, Oman and Angola


After a solid stretch of policy and economic performance, Argentina shook investor confidence at the end of last year with a sudden change of inflation target, resulting in an 18% depreciation in its currency.

At the meetings, policymakers clearly expressed that they had learned lessons from how they communicated the policy change. Meanwhile, a weaker currency and stronger growth numbers could easily trigger better fiscal performance than expected and support lower issuance.

In the short term, we expect to see the central bank try and re-anchor inflation expectations, while seasonal flows could also support the stabilisation in the current account.

  • What to watch out for – Central bank stance on inflation and exchange rate; Progress on wage negotiations with unions

Costa Rica

With the election of President Carlos Alvarado, we are finally starting to see moves to rein in the fiscal deficit which has plagued the country. Recent reforms introduced are expected to cut almost 2.5% off the deficit, while the IMF team seemed to think that this was just the first step towards the 3.5% figure needed to stabilise debt to GDP ratio. Although a move in Congress towards the centre-right bodes well for any package being approved, we will need to monitor the situation closely once the new Congress takes its seat on the 1 May.

  • What to watch out for – Constitutional Court and new congress stance on proposed fiscal reform package; Progress on wage negotiations with unions

Signs of reform fatigue

After a period of improvement in economic data, a few countries are starting to show some signs of weakness. This will need to be addressed in the short term to avoid a build-up in vulnerabilities. Countries in this category included Ukraine and Senegal.


Ukraine’s performance under its current IMF programme has started to wane. This is in part due to local resistance of some of the tougher proposed measures such as increasing gas prices by 40% as well as establishing an Anti-Corruption Court.

Fundamental performance has remained relatively good, with inflation continuing to moderate and the strong current account balance moving reserves above US$18bn. However, given the refinancing risks that remain, Ukraine still require the IMF support.

  • What to watch out for – Willingness of government to address outstanding IMF issues (Anti-corruption court, gas price hikes); Plan post expiry of program in March 2019

Signs of fragility

Some countries face debt sustainability issues which are not being adequately addressed and show some signs of fragility. Vigilance is required, as without sufficient action by authorities these countries could face severe difficulties in the future. Countries in this category included Pakistan, Zambia, Ecuador and Venezuela.


With deteriorating fiscal and current account balances, Pakistan is quickly heading back to a situation where it will require an IMF programme to stabilise its finances. It only just escaped from IMF support 18 months ago, yet with an election coming up, we have seen little intent to address the deteriorating level and quality of fiscal balances, deal with the current account deficit or address the overvalued exchange rate.

  • What to watch out for – Stance from new government post general election in July 2018, changes to currency policy as pre-cursor to engagement with IMF


The credibility of Zambian policymakers continued to erode when the government failed to deal with the issue of large contracted loans, which endanger debt sustainability. They have also failed to propose sufficient fiscal reforms to offset this proposed debt load.

In the meantime foreign currency reserves continue to decline and now sit at only two months of import cover, as external debt payments erode external buffers even at higher copper prices

  • What to watch out for – Debt sustainability analysis to be released from Zambian authorities; New IMF Article IV on Zambia; Foreign Exchange Reserve levels


Important information

Past performance is not a reliable indicator of future results and all investments carry the risk of capital loss.

This material is for informational purposes only and should not be construed as an offer, or solicitation of an offer, to buy or sell securities. All of the views expressed about the markets, securities or companies reflect the personal views of the individual fund manager (or team) named. While opinions stated are honestly held, they are not guarantees and should not be relied on. Investec Asset Management in the normal course of its activities as an international investment manager may already hold or intend to purchase or sell the stocks mentioned on behalf of its clients. The information or opinions provided should not be taken as specific advice on the merits of any investment decision. This content may contains statements about expected or anticipated future events and financial results that are forward-looking in nature and, as a result, are subject to certain risks and uncertainties, such as general economic, market and business conditions, new legislation and regulatory actions, competitive and general economic factors and conditions and the occurrence of unexpected events. Actual results may differ materially from those stated herein.

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