Emerging

Racing against time

nd  
Eco Emerging // 2 quarter 2021  
economic-research.bnpparibas.com  
2
EDITORIAL  
RACING AGAINST TIME  
In their spring outlook, the IMF economists expect to see a multi-speed (and incomplete) recovery of the global  
economy in 2021. Indeed, speed is the key word for 2021 because the emerging countries are racing against time on  
several fronts. In our eyes, the greatest short-term risks are linked to the race between the rollout of vaccinations  
and the spread of the pandemic, and between higher food prices and the partial catching-up of revenues for low-  
income households. If this divergence persists, we could see a rise in social risks, which may have a much more  
destabilisation capacity than financial risks.  
In their spring outlook, the IMF economists expect to see a multi-speed costs for governments. If we compare 2021-2022 to the period 2019-  
recovery of the global economy in 2021, albeit an incomplete one. 2020, the ratio between interest charges and fiscal revenues will  
Nothing really different from the major crises of the past. Yet speed increase for about two thirds of the main emerging countries. For  
seems to be the key word for 2021, because the emerging countries are most of them, this ratio is still moderate or even low (only 10% of  
in the midst of a race against time on several fronts.  
A race against time between the rollout of vaccinations and the  
spread of the pandemic  
A new wave of Covid-19 cases has broken out since mid-March, just  
as vaccination campaigns are beginning to roll out. On the positive  
side, the number of vaccine doses, and fully vaccinated people for  
that matter, is rising faster than the number of reported new cases in  
virtually all countries. But the percentage of the vaccinated population  
is still low, except in such emblematic cases as Israel and Chile, and to  
a lesser extent, in Hungary and Morocco. Looking beyond this handful  
the emerging countries have a ratio of more than 20%). Among the  
emerging countries, government solvency is not a real threat, even  
for the most fragile countries in this respect (South Africa, Brazil and  
India). But it does create an additional constraint, making it harder to  
maintain income support measures (which are set to expire in the vast  
majority of countries) or at least putting a damper on investment.  
A race against time between the return to normal of corporates’  
turnover and the end of moratoriums on repaying bank loans and  
the maturing of liquidity loans doled out since the beginning of the  
pandemic.  
of countries, vaccination rates are highest in Central and Eastern Despite the recession, bank lending to households and companies has  
Europe and in Turkey, at between 5% and 10%. In the Asian and Latin increased by more than 5% in half of the emerging countries. Moreover,  
American countries, vaccination rates are no more than 2%, with the the monetary authorities or bank supervisory boards have granted  
exception of Singapore. But in Latin America, unlike the industrialised banks a longer period for classifying late payments as doubtful loans.  
Asian countries, the pandemic does not seem to be coming under As a result, doubtful loan ratios will rise sharply this year, undoubtedly  
control, far from it. Brazil is the country where the situation is the more than during the 2008 crisis. Fortunately, capitalisation of the  
most alarming, with a number of vaccinations barely higher than the banking system has been strengthened over the past decade.  
number of new cases, and a very low vaccination coverage.  
A race against time between rising commodity prices and the race against time between the number of vaccinations and the spread  
catching-up of household revenues  
In our eyes, the biggest risks in the very short term are linked to the  
of the pandemic, and between rising food prices and the catching-up  
of revenues for low-income households. If this divergence persists,  
we could see a rise in social risks, which may have a much more  
destabilisation capacity than financial risks.  
Commodity prices have picked up strongly since mid-2020, with metal  
and oil prices leading the way, followed by agricultural products  
since Q4. The recovery has even accelerated since early 2021. For  
net commodity exporting countries, this factor reduces the balance of  
payment risk, and even sovereign risk. However, it is an aggravating  
factor for social risks, especially food price inflation, which hits the  
poorest populations. IMF experts estimate that an additional 98 million  
people fell below the poverty line last year, with 68 million new cases of  
malnutrition, mainly due to the decline in revenues, but also to higher  
food prices. Agricultural commodity prices are already 20% higher than  
the 5-year average, and close to the peak levels of 2008 and 2011. Yet  
revenues are bound to catch up only partially, even though employment  
in the emerging countries generally responds more rapidly to growth  
than it does in the advanced countries.  
Completed on 9 April 2021  
François Faure  
francois.faure@bnpparibas.com  
A race against time between the turnaround in fiscal revenues and  
heavier debt servicing charges  
In 2020, public debt for all of the emerging and developing countries  
rose by about 10 points of GDP. Yet the interest burden continued to  
diminish due to the ongoing decline in interest rates. This will no  
longer be the case in 2021, mainly because public debt is swelling, but  
also because of tighter monetary policy, not only in the United States,  
but also in the emerging countries themselves. This raises borrowing  
The bank  
for a changing  
world  
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