Page 64 - BNE_magazine_12_2019 dec19

64 Opinion bne December 2019
Fears of a global recession receded somewhat after the IMF, World Bank annual general meeting as the news is not as bad as it seems.
IMF meetings, not as bad as you think
Elina Ribakova Deputy Chief Economist of the Institute of International Finance
Investors and policymakers finished the International Monetary Fund (IMF), World Bank annual general meetings in October on a more positive note than expected.
Accommodative central bank policies and the recent US-China truce should help risk sentiment. Most participants believed that fiscal stimulus was needed, but no consensus was reached in terms of which countries would deliver it.
As we argue in our Capital Flows Report, this environment supports a modest pickup in flows to EM. Portfolio debt flows rose in several EMs despite a lower growth differential to developed markets (Exhibits 1 and 2).
Attractive real rates explain some of these dynamics (Exhibit 3). In this note, we take a closer look at select countries in the CEEMEA region: Russia, South Africa, Turkey, and Ukraine.
During the meetings, the IMF’s proposal for an integrated policy framework (IPF) was much debated by authorities but attracted surprisingly little attention from investors. Once adopted, it could be an important departure from the IMF’s historically orthodox advice on capital flows. The IPF would allow
for a more liberal use of FX and capital flow management techniques in countries with market dislocations (e.g. dollarization) and shallow domestic markets. Some EM central
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banks worried that the IPF could undermine their credibility and intensify political pressure to deliver growth.
Russia’s conservative central bank and continued fiscal prudence remain attractive to investors. The country continues to benefit from exceptionally low macro vulnerabilities, and the break-even oil price for both external and fiscal balance
is low. Investors appear more comfortable with the sanctions risk, as renewed inflows into domestically-issued government
“Russia’s conservative central bank and continued fiscal prudence remain attractive to investors”
debt show. While we believe that the OFZ market is unlikely to be targeted in the near term, we are paying close attention to whether a new bill could consolidate current initiatives (DAASKA and DETER) and whether additional measures will be introduced into the NDAA during conference.
On South Africa, our key takeaway is that the government is likely to announce sizable spending cuts in the MTBPS on