Page 24 - GEORptAug22

5.1.2 Current account dynamics
Fitch says war and pandemic increasing prevalence of EM twin deficits
Fitch Ratings has forecast that more than a quarter of Fitch-rated emerging markets—including Romania, Georgia, Uzbekistan, North Macedonia, Turkey and Armenia—will experience budget and current account deficits of at least 4% of GDP in 2022.
Announcing a new report, “Sovereign Dashboard: War and Pandemic Increase Prevalence of EM Twin Deficits”, Fitch said: “The rise in the prevalence of sizeable twin deficits primarily reflects the surge in budget deficits caused by the Covid-19 pandemic plus a rise in EM countries running larger current account deficits in the wake of Russia’s invasion of Ukraine and the ensuing jump in energy and food prices.”
For 2022, Fitch forecast that countries including Romania (rated BBB-) will run twin deficits of at least 7% of GDP; countries including Georgia (BB), Uzbekistan (BB-) and North Macedonia (BB+) will run deficits of at least 5% of GDP; and nations including Turkey (B+) and Armenia (B+) will run deficits of at least 4% of GDP.
“Sizeable twin deficits sit against an environment of slowing global growth, rising US Federal Reserve interest rates, quantitative tightening, a strong US dollar, high inflation and rising domestic policy rates. The surge in food prices is adding to social and fiscal pressures,” said Fitch.
It added: “Twin deficits can indicate macroeconomic imbalances and mean that budget deficits depend on foreign financing in net terms. That said, twin deficits in some EMs reflect project loans and are therefore effectively pre-financed.”
Fitch has downgraded nine different EMs so far in 2022, more than in the whole of 2021. There has been just one upgrade.
A record 48% of Fitch-rated EMs are now in the ‘B’/‘C’/‘D’ rating categories.
24 GEORGIA Country Report August 2022 www.intellinews.com