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Emerging Asia

Sri Lanka

Asia late to tightening but won’t have to go far

Central banks in India, the Philippines and Malaysia have all raised interest rates for the first time this cycle in recent weeks, and we expect further hikes next week in Indonesia, Korea and Pakistan. But with inflation set to fall back in the second half of the year and growth likely to weaken, tightening cycles are unlikely to be aggressive. Our forecasts are generally more dovish than the consensus.
Asia Drop-In (26th May, 0900 BST/16:00 SGT): Can Asia remain the low inflation exception? Join our 20-minute briefing about the region’s price and policy outlooks. Register here.

20 May 2022

Three positive stories from frontier markets

There has been plenty of doom and gloom surrounding the outlook for frontier economies over recent months, particularly Sri Lanka and Tunisia. But there are some places where we hold more upbeat views. Frontier economies in the Gulf will benefit from high oil prices, while manufacturing should drive strong growth in Morocco and Vietnam.

12 May 2022

Sri Lanka: five questions and answers on the crisis

The resignation yesterday of the prime minister, the postponement of talks with the IMF, surging inflation and the collapse of the currency are just some of the many problems facing Sri Lanka. In this Update, we answer five key questions about the outlook for the country. China Drop-In (12th May, 09:00 BST/16:00 SGT): Join our China and Markets economists for a 20-minute discussion about near to long-term economic challenges, from zero-COVID disruptions to US-China decoupling. Register now.

10 May 2022
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New headwinds emerge

Our GDP growth forecasts are generally above the consensus, but with higher commodity prices and weaker global demand set to weigh on economic recoveries, growth across much of Emerging Asia will be slower than we had anticipated in our last Outlook. Most central banks in the region are likely to raise interest rates this year – the exceptions are parts of South East Asia and China (where we expect a rate cut). However, with growth set to slow and inflation relatively subdued, Asian central banks will tighten policy less aggressively than those elsewhere, and our interest rate forecasts are more dovish than most.

Who holds frontier markets’ foreign debt?

China and private bondholders have become increasingly important creditors to governments of many frontier markets, including some of those that are now finding themselves in debt distress. This is likely to make any debt restructuring talks more complex and longer which could, in turn, could delay bailouts from the IMF.

What next for Pakistan and Sri Lanka?

Recent tumultuous events in Pakistan and Sri Lanka should eventually pave the way for IMF deals in both countries, which over time may lead to the return of economic stability. However, this is by no means guaranteed. And painful periods of austerity are likely to precede that. We are sending this Weekly one day earlier than usual because our offices are closed for Good Friday on Friday, 15th April

Sri Lanka suspends debt payments, pushes for IMF deal

Sri Lanka’s decision today to suspend payments to bond holders is designed to pave the way for a deal with the IMF and an orderly rescheduling of its debts. The diverse array of creditors to Sri Lanka could make a debt restructuring programme difficult to achieve, and our analysis suggests that recovery rates are likely to be in the region of 50%. Drop-In (13th April, 16:00 SGT/09:00 BST): Will political turmoil in Pakistan and Sri Lanka lead to debt defaults? Join our EM economists this Wednesday for a discussion about economic and political turmoil in South Asia. Register now

Flaring political risks a major threat in South Asia

A constitutional crisis in Pakistan threatens to scupper its deal with the IMF, which would throw its already-precarious external situation into very dangerous territory. Meanwhile, political meltdown in Sri Lanka, where an external crisis is already well underway, has dashed hopes of the country securing its own IMF deal and once again ramped up the risk of sovereign default.

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