IMF Will Come To The Rescue

Kristalina IMF

Many poor countries lost market access in the first half of 2020 with the arrival of the pandemic, forcing them into pro-cyclical austerity. Since then, and up to the end of last May, the IMF had provided unconditional financing to 78 countries to the tune of $109.6 billion. But the bulk of the assistance will come in August, when the IMF’s board of governors approves an allocation of $650 billion in special drawing rights (SDRs) for all its members. Negotiations are now focused on the G7’s request: to allocate $100 billion of the $437 billion that would go to high-income countries to the most vulnerable countries.

The G20 and the IMF have provided significant financial support to low-income countries since the beginning of the pandemic. This support is likely to increase in the coming months: The allocation of $650 billion in Special Drawing Rights (SDRs) by the IMF is now a certainty. This will be a major boost for emerging market foreign exchange reserves and high-yield bonds. In addition to the SDR allocation, the IMF is considering how to reallocate another $100 billion in SDRs from rich to low- and middle-income countries.

From a fixed income investment standpoint, these policies will provide additional support for the strong performance of emerging market high yield bonds in the second half of 2021(*). The most attractive countries include Côte d’Ivoire, Papua New Guinea, Tajikistan, Maldives and Seychelles.

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.