Emerging countries: speed races

In their last spring forecasts, the IMF's economists expect a global but partial and multi-speed rebound. Nothing new considering past crises. However, speed is the keyword.In emerging countries as well, the year 2021 will be characterized by speed races.

First speed race: pandemic resurgence versus vaccinations.

Since mid-March, we have noted a contamination boom in emerging countries. Luckily, for most of these countries, the number of vaccinated people is higher than the number of new registered cases. But the problem is that the vaccination rate is rather low excluding the emblematic cases of Israel and Chile and to a lesser extent those of Hungary and Turkey. In this overview, Brazil remains the most vulnerable country.

Second speed race: the hike in raw material prices versus the populations' income.

We know that the rise in raw material prices is usually favourable to emerging countries. Most of them are net exporters of commodities. It is a good thing for their public finances and their external accounts. However, this could imply social risks. The IMF's experts already estimated last year that 98 million persons fell below the poverty line and that 68 million persons fell into malnutrition. It is due to declining revenues but also to a hike in food prices. Those are close to record highs. This will weigh durably on family incomes.

Third speed race: tax revenues versus debt interests.

In 2020, in emerging countries, public debt increased by 10 points of GDP. Meanwhile, the debt burden continued to decrease. This will no longer be the case in 2021. Around two thirds of emerging countries will see their interest to revenue ratio increase. At the moment, this rate remains moderate. The solvency of these states is not called into question.However, their room of manoeuvre could be compromised if they have to carry on with the support of their population.

Fourth and last speed race: a race against the clock.

Firms are stuck in between turnover recovery and loans repayment. There were moratoria on loans last year. But loans to firms and households increased by 5% despite the recession. All these loans will have to be repayed sooner or later. In addition, central banks asked banks not to record as bad loans, loans that were no longer or not much repayed.

So, this year, we know we will have a sharp increase in bad loans probably sharper than in 2008. The main difference, which is rather positive,is that, compared to 28, banking systems are better capitalized. They will best withstand the increase in payment defaults.

To conclude, the speed races that carry more risk are pandemic versus vaccinations and commodity prices versus income, for the poorest populations in particular. The main problem being, with a widening gap, an increase in social risk.