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Our country risk team provides a snapshot of the events shaping
country risk in October.
G20 debt relief extension: 14 October
Future UK-EU relations: 15 October
New Zealand, Australia policy direction: 17
October
Bolivia's postponed general election: 18
October
South Africa's COVID-19 recovery budget: 26
October
G20 debt relief extension
Against the backdrop of the International Monetary Fund's (IMF)
and the World Bank's annual meetings on 12-18 October, finance
ministers from the Group of Twenty (G20) leading economies will
meet on 14 October. The delegation will decide
whether to extend the Debt Service Suspension Initiative (DSSI) for
International Development Association-eligible borrowing countries
and Angola into 2021. According to the Paris Club of official
creditors, 39 of 73 eligible countries have applied, with 31
finalising debt suspensions - mostly in sub-Saharan Africa. The
extension is supported by the US Treasury, and World Bank President
David Malpass stated on 19 August that he also supports an
"agreement to actually do haircuts and write-downs". However,
private creditor uptake remains negligible: there are no proposals
to introduce a non-voluntary commitment or provide an effective
framework to co-ordinate the diverse range of market participants
who, in any case, have strong fiduciary obligations to their
clients. The G20 likely will also decide on increasing the IMF's
Special Drawing Right (SDR) quotas for the lowest-income countries,
which would facilitate the expansion of coronavirus disease 2019
(COVID-19)-related emergency financing packages.
Indicators to watch:
Chinese authorities oppose classifying state-backed banks as
official lenders under the DSSI - most notably in the case of
Angola - thereby undermining US support for extending debt relief
into 2021.
US President Donald Trump criticises proposed IMF reforms as
benefitting Iran and Venezuela, indicating that an increase in SDR
quotas for low-income countries is unlikely.
Bolivia's postponed general election
Bolivia holds presidential and legislative elections on
18 October that were postponed due to the COVID-19
virus pandemic, with a potential second round being held in
November. The previous October 2019 election result was annulled
due to alleged electoral fraud. The resulting resignation of former
president Evo Morales caused a political vacuum and social unrest
in November 2019. Continued political polarisation suggests that
the election result will be contested again. Bolivia's next
president faces several economic challenges: IHS Markit is
projecting the economy to contract by 7.7% of GDP in 2020, with low
commodity prices pushing down natural gas revenues (which account
for 20% of total government revenues), and rising unemployment.
Furthermore, the lack of exploration for new gas and mining
reserves under the previous administration has limited growth
prospects. Leading candidates Luis Arce and Carlos Mesa are
proposing greater industrialisation of natural resources to reduce
export dependence. However, this process will take several years
and will not address fiscal revenue losses and greater social
spending outlays associated with COVID-19. Consequently, IHS Markit
expects the fiscal deficit to exceed 10% of GDP in 2020, with any
new president requiring additional multilateral financial support
in 2021.
Indicators to watch:
The election results are contested, delaying the new
administration taking control and hindering the policy
implementation that will be necessary for economic recovery.
The largest opposition party MAS wins a legislative majority
but not the presidency, indicating policy paralysis over key issues
like multilateral funding terms.
Other events to watch in October
Chile's referendum on new constitution, 25
October. Voters will also choose what type of constituent
body should draft the constitution: one formed by only elected
members, or a body that is half composed of elected members and
half parliamentarians. If "yes" wins, the process will take at
least two years. Key issues include the state's role in the economy
and property rights.
Quad meeting between Australia, India, Japan, and the
United States, late October. Foreign ministers of the four
Quadrilateral Security Dialogue (Quad) members are expected to
meet, indicating their increased intent to formalise the grouping.
Key areas of co-ordination will probably include defence and
commercial collaboration.
Posted 24 September 2020 by Chris Suckling, Ph.D., Principal Analyst, Economics & Country Risk, IHS Markit