Riskier emerging-market nations will need to keep exploring new ways to raise money or revamp their finances as the door to international debt markets stays shut, according to money managers at Vanguard Group Inc.
Some countries such as Tanzania and Ivory Coast are already making greater use of funding from lenders such as the International Monetary Fund, while others such as Nigeria are pushing through reforms, said Nick Eisinger, co-head of emerging markets active fixed income at Vanguard.
Tighter global financing conditions as central banks battle to bring inflation to heel has kept the door to international debt markets firmly closed for developing nations with a riskier credit profile. Higher global borrowing costs are, however, forcing so-called frontier nations to embrace austerity and get more serious about debt sustainability, said Mauro Favini, a senior portfolio manager at Vanguard.
“If governments impose austerity measures, that means the fiscal needs — and therefore bond issuance — is lower,” said Favini. “And lower financing needs are good for existing bond holders.”
For some countries, the lack of access to debt markets is driving fresh efforts to revamp their economies. Nigeria, for example, is taking painful steps to patch up its finances by scrapping fuel subsidies and revamping a widely-criticized exchange-rate system.
Nigeria’s dollar bonds have returned investors 14.9% in dollar terms this year. The average for EM and frontier peers in a Bloomberg sovereign dollar bond index is 4.2%.
“Some are reinvigorating reform like Nigeria, Kenya, and others are relying on greater use of official funding from IMF,” said Eisinger. Other nations are taking steps such as drawing on foreign currency reserves, he said.
Developing nations with a riskier credit profile that have debt coming due next year include Ukraine, Ivory Coast, Kenya, Egypt and Pakistan.
This article was provided by Bloomberg News.