{"id":545123,"date":"2022-03-06T14:46:15","date_gmt":"2022-03-06T14:46:15","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/2022\/03\/06\/ems-are-struggling-to-recover-from-the-impact-of-the-pandemic\/"},"modified":"2022-03-06T14:46:15","modified_gmt":"2022-03-06T14:46:15","slug":"ems-are-struggling-to-recover-from-the-impact-of-the-pandemic","status":"publish","type":"post","link":"https:\/\/enterpriseam.com\/egypt\/2022\/03\/06\/ems-are-struggling-to-recover-from-the-impact-of-the-pandemic\/","title":{"rendered":"EMs are struggling to recover from the impact of the pandemic"},"content":{"rendered":"

<\/a> EMs are still struggling to address the economic repercussions of the pandemic (to say<\/strong> nothing of the effects of Russia\u2019s war in Ukraine)? <\/strong>With the pandemic in its third year, the post-covid recovery has been the primary focus for the global economy, but developing countries and emerging markets are facing several hurdles to get there. The full effects of the ongoing war between Russia and Ukraine have yet to be accurately measured, but it\u2019s safe to say they will only serve to worsen the economic landscape for households, businesses, and banks in emerging markets, which are already facing record inflation figures and aggressive monetary tightening. These conditions are creating \u201cgrowing risks\u201d for EMs, which now need \u201cto focus on creating healthier financial sectors, according to the World Bank\u2019s Finance for an Equitable Recovery report (pdf)<\/a>.<\/p>\n

First thing\u2019s first: What do the risks look like?<\/strong> For one, global inflation is soaring, with price increases in the OECD\u2019s 38 members rising to a 25-year high of 6.6% in December, according to data<\/a> released by the OECD. While global food prices rose closer to record highs<\/a> in February as supply chain disruptions, rising energy prices, poor weather and labor shortages push the world closer to a food crisis.<\/p>\n

Egypt hasn\u2019t been immune:<\/strong> Knock-on effects from the global economy have pushed annual urban inflation in Egypt to its highest in almost 2.5 years in January, hitting 7.3%<\/a> on the back of rising food prices and an unfavorable base effect. Inflationary pressures have impacted business confidence in demand, with February\u2019s Purchasing Managers\u2019 Index indicating that confidence levels are at an all-time low due to the current economic conditions.<\/p>\n

And global inflation now looks set to climb even higher<\/strong>, as the conflict in Ukraine has led to one of its biggest commodities shocks in decades<\/a>. Russia and Ukraine account for a bulk of the world\u2019s commodities production, with Russia alone acting as the world\u2019s second-biggest commodities producer and sanctions against Moscow impacting the prices of Brent crude, natural gas, metals, and coal. Ukraine and Russia are also two key sources of wheat \u2014 both of whom Egypt heavily relies on for its wheat imports \u2014 together accounting for around a quarter of global wheat supply.<\/p>\n

With inflation on the up and up, global central banks are pivoting to monetary tightening cycles to get price rises under control.<\/strong> The emerging consensus is that we\u2019re facing sooner-than-expected interest rate hikes<\/a>from global central banks, which is pushing up yields on government bonds, triggering a sell-off around the world. The US Federal Reserve will likely make nine consecutive quarter-point rate hikes starting March in a bid to curb soaring inflation, JPMorgan predicts<\/a>.<\/p>\n

That\u2019s not very good news for EM debt:<\/strong> The anticipated interest rate increases in developed countries is expected to put emerging-market debt at risk<\/a> of outflows as it becomes less attractive to foreign investors, and raise borrowing costs for governments that have accumulated debts denominated in USD. A tighter US policy could leave EMs vulnerable to a drop in foreign inflows as risk-averse managers seek safer returns in the US.<\/p>\n

Rising interest rates = more vulnerable businesses:<\/strong> A period of low interest rates prior to the pandemic \u201csaw a significant buildup of financial risks in the corporate sectors,\u201d as businesses took on more debt, which they were already struggling to repay before the pandemic set in. To make matters worse, much of this debt was USD-denominated, which was initially an attractive option due to low interest rates, the World Bank notes. Now, however, firms holding significant amounts of FX-denominated debt are finding their liabilities \u201cmore difficult to service,\u201d the report says.<\/p>\n

On the upside, this <\/strong>hasn't translated into a jump<\/a><\/strong> in non performing loans<\/strong> (NPLs) as of the end of 2021, but the World Bank suggests this won\u2019t necessarily be the case in the long-term. The report explains that, as governments start to withdraw their pandemic support policies \u2014 including freezes on credit reporting, which means \u201cbanks are largely unable to distinguish illiquid from insolvent borrowers\u201d \u2014 we should expect an increase in NPLs across countries and individual sectors.<\/p>\n

Sovereign debt has also soared<\/strong>, with emerging economies now facing a massive debt pile as a result of their economic stimulus programs. Consequently, countries have either been unable to introduce policies comprehensive enough to prevent a \u201csurge in insolvencies, loan defaults, and spillovers from households and firms to the financial sector,\u201d or have been forced to borrow more to finance the support programs. Increasing domestic debt usually ushers in higher inflation rates, exacerbating the cycle.<\/p>\n

Households are also bearing the brunt of the pandemic\u2019s financial repercussions:<\/strong> During the first year of the pandemic, more than 50% of the world\u2019s households were financially unprepared to sustain basic necessities for more than three months in the event of losing their source of income. Low-income households are also largely unable to get their hands on loans to plug their financing gaps, as banks look to mitigate their own lending risks. And as credit tightens, the most vulnerable borrowers \u2014 low-income households \u2014 are usually the first to be cut off from credit. Household struggling with pandemic-related unsustainable debts will result in decreased consumption, job creation, and productive investment.<\/p>\n

So, what\u2019s the antidote?<\/strong> The report lays out a number of policy reforms to help countries mitigate the risk of an onslaught of insolvent households and businesses, which include strengthening formal insolvency mechanisms, providing alternative dispute resolution systems and promoting debt forgiveness and discharge of natural person debtors.<\/p>\n","protected":false},"excerpt":{"rendered":"

EMs are still struggling to address the economic repercussions of the pandemic (to say nothing of the effects of Russia\u2019s war in Ukraine)? With the pandemic in its third year, the post-covid recovery has been the primary focus for the global economy, but developing countries and emerging markets are facing several hurdles to get there. […]<\/p>\n","protected":false},"author":1,"featured_media":545124,"comment_status":"closed","ping_status":"open","sticky":false,"template":"single-feature.php","format":"standard","meta":{"_acf_changed":false,"newspack_ads_suppress_ads":false,"newspack_popups_has_disabled_popups":false,"newspack_sponsor_sponsorship_scope":"","newspack_sponsor_native_byline_display":"inherit","newspack_sponsor_native_category_display":"inherit","newspack_sponsor_underwriter_style":"inherit","newspack_sponsor_underwriter_placement":"inherit","ep_exclude_from_search":false,"_primary_brand":0,"newspack_featured_image_position":"","newspack_post_subtitle":"","newspack_article_summary_title":"Overview:","newspack_article_summary":"","newspack_hide_updated_date":false,"newspack_show_updated_date":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[9272],"tags":[107,115,633,1509,349,1095,1510],"brand":[],"newspack_spnsrs_tax":[],"class_list":["post-545123","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-the-macro-picture","tag-covid-19","tag-emerging-markets","tag-enterprisepm","tag-global-inflation","tag-interest-rates","tag-russia-ukraine-war","tag-the-macro-picture","wpautop","entry"],"acf":{"mongo_id":"2f2ab071-f8cd-4967-9d41-a8a04171436d","is_powered_by":true,"story_type":"1","photo_url":"https:\/\/ent.news\/2022\/3\/434.jpg","photo_position":"above","related_issue":[545114],"teaser":"","voice_url":""},"yoast_head":"\nEMs are struggling to recover from the impact of the pandemic - EnterpriseAM Egypt<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/enterpriseam.com\/egypt\/2022\/03\/06\/ems-are-struggling-to-recover-from-the-impact-of-the-pandemic\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"EMs are struggling to recover from the impact of the pandemic\" \/>\n<meta property=\"og:description\" content=\"EMs are still struggling to address the economic repercussions of the pandemic (to say nothing of the effects of Russia\u2019s war in Ukraine)? 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What will 2023 bring? Emerging markets had a rough ride last year. Aggressive monetary tightening led by the US Federal Reserve combined with inflation and commodities shocks to bring currency woes, losses in stocks and bonds, and even debt defaults for\u2026","rel":"","context":"In "Macro picture"","block_context":{"text":"Macro picture","link":"https:\/\/enterpriseam.com\/egypt\/category\/explainers\/macro-picture\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/ent.news\/2023\/1\/620.jpg?fit=%2C&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]},{"id":551678,"url":"https:\/\/enterpriseam.com\/egypt\/2022\/07\/06\/enterprise-explains-stagflation\/","url_meta":{"origin":545123,"position":1},"title":"Enterprise Explains: Stagflation","author":"enterpriseam admin","date":"6 July 2022","format":false,"excerpt":"What is stagflation, and what could it look like in the 2020s? Russia\u2019s invasion of Ukraine has exacerbated the slowdown in global economic recovery, as well as disruptions in the global supply chain, both of which the world has already been coping with since the onset of the covid-19 pandemic.\u2026","rel":"","context":"In "THE MACRO PICTURE"","block_context":{"text":"THE MACRO PICTURE","link":"https:\/\/enterpriseam.com\/egypt\/category\/the-macro-picture\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/ent.news\/2022\/7\/364.jpg?fit=%2C&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]},{"id":550819,"url":"https:\/\/enterpriseam.com\/egypt\/2022\/04\/28\/em-debt-is-under-pressure-but-after-headwinds-subside-latin-america-could-be-in-for-a-windfall\/","url_meta":{"origin":545123,"position":2},"title":"EM debt is under pressure \u2014 but after headwinds subside, Latin America could be in for a windfall","author":"enterpriseam admin","date":"28 April 2022","format":false,"excerpt":"US real yields turning positive to raise pressure on EMs: The inflation-adjusted 10-year yield on US treasuries turned briefly positive last week, sounding alarm bells among emerging-market money managers, Bloomberg reports. US-based Franklin Templeton said it would cut its positions in high-yield debt, while Fidelity International is betting against EM\u2026","rel":"","context":"In "THE MACRO PICTURE"","block_context":{"text":"THE MACRO PICTURE","link":"https:\/\/enterpriseam.com\/egypt\/category\/the-macro-picture\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/ent.news\/2022\/4\/537.jpg?fit=%2C&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]},{"id":544327,"url":"https:\/\/enterpriseam.com\/egypt\/2022\/02\/27\/the-case-for-investing-in-em-economies-has-rarely-been-weaker-argues-the-ft\/","url_meta":{"origin":545123,"position":3},"title":"The case for investing in EM economies has \u201crarely been weaker,\u201d argues the FT","author":"enterpriseam admin","date":"27 February 2022","format":false,"excerpt":"With EM economies facing slowing growth, soaring debt, and imminent US interest rate hikes, the case for investing in them has \u201crarely been weaker,\u201d argues Jonathan Wheatley in the Financial Times. Amid the ongoing covid-19 pandemic, many EM economies have accrued high levels of debt, which they relied on to\u2026","rel":"","context":"In "Macro picture"","block_context":{"text":"Macro picture","link":"https:\/\/enterpriseam.com\/egypt\/category\/explainers\/macro-picture\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/ent.news\/2022\/2\/560.jpg?fit=%2C&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]},{"id":554906,"url":"https:\/\/enterpriseam.com\/egypt\/2021\/11\/21\/are-we-entering-the-era-of-post-pandemic-austerity\/","url_meta":{"origin":545123,"position":4},"title":"Are we entering the era of post-pandemic austerity?","author":"enterpriseam admin","date":"21 November 2021","format":false,"excerpt":"Governments are widely scaling back massive fiscal programs that had helped push economies through covid \u2014 a trend that, contrary to popular belief, could potentially have more impact on the global economy than monetary policy tightening by central banks, says Bloomberg. Together, governments plugged in an amount equal to 2.5%\u2026","rel":"","context":"In "THE MACRO PICTURE"","block_context":{"text":"THE MACRO PICTURE","link":"https:\/\/enterpriseam.com\/egypt\/category\/the-macro-picture\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/ent.news\/2021\/11\/189.jpg?fit=%2C&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]},{"id":594326,"url":"https:\/\/enterpriseam.com\/egypt\/2019\/10\/27\/usd-debt-exposure-an-achilles-heel-for-ems-right-now-fitch-says\/","url_meta":{"origin":545123,"position":5},"title":"USD debt exposure an Achilles\u2019 heel for EMs right now, Fitch says","author":"enterpriseam admin","date":"27 October 2019","format":false,"excerpt":"USD debt exposure an Achilles\u2019 heel for EMs right now, Fitch says: Of all the macro issues emerging markets have to worry about, the biggest concern for them at the current moment is their exposure to USD-denominated external debt as the USD strengthens, Fitch Solutions\u2019 Michael Larson said in a\u2026","rel":"","context":"In "THE MACRO PICTURE"","block_context":{"text":"THE MACRO PICTURE","link":"https:\/\/enterpriseam.com\/egypt\/category\/the-macro-picture\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/ent.news\/2019\/10\/2055.jpg?fit=%2C&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]}],"_links":{"self":[{"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/posts\/545123","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/comments?post=545123"}],"version-history":[{"count":0,"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/posts\/545123\/revisions"}],"acf:post":[{"embeddable":true,"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/afternoon\/545114"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/media\/545124"}],"wp:attachment":[{"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/media?parent=545123"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/categories?post=545123"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/tags?post=545123"},{"taxonomy":"brand","embeddable":true,"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/brand?post=545123"},{"taxonomy":"newspack_spnsrs_tax","embeddable":true,"href":"https:\/\/enterpriseam.com\/egypt\/wp-json\/wp\/v2\/newspack_spnsrs_tax?post=545123"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}