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We recently attended (virtually) the 2020 Annual IMF Meetings, where we met with officials from finance ministries, central banks, IFIs such as the IMF, as well as independent economists and experts on topics such as politics and public health. Below are our top global and emerging markets (EM) takeaways (we have China in the global section due to its importance to the global economy).
Now comes the hard part—debt is higher, growth is lower. The synchronized downturn and upturn have happened. Most asset prices are already around their pre-COVID-19 levels. Monetary and fiscal policy have provided market stability, but the growth impact is still highly uncertain. If growth does not persist, we believe the record levels of debt that have been incurred due to lockdown may face repayment risk.
Burden-sharing for private creditors is coming down the pike, with big implications for a number of poorer countries, particularly in Sub-Saharan Africa. If you recall from the top takeaways from our April, 2020 Semi-Annual IMF meeting, we highlighted a new policy development established by the G-20—the Debt Service Suspension initiative (DSSI). We saw incredible opportunities for many of the bonds we look at as a result of this. In a nutshell, the DSSI allowed the poorest countries to suspend debt service to rich countries (bilateral debt) and multilaterals, without requiring the country to default to private sector creditors such as bondholders.
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