Perspectives 2020-2021 Public Sector

Citi Perspectives for the Public Sector 38 39 Transforming Debt: Re-Focusing in the COVID-19 Era Transforming Debt: Re-Focusing in the COVID-19 Era The impact of the pandemic has not been uniform; some countries have been less affected or have coped better. 38 T his article looks at how multilateral development banks are helping borrowers, many of which have massive financing needs in the wake of the COVID-19 pandemic, to better insulate themselves from global events and systemic shocks by modifying the currency-denomination of their existing loans. The IMF’s World Economic Outlook Update, published in June 2020, predicts that the global economy will shrink by 4.9% in 2020 – 1.9 percentage points more than estimated in its April 2020 forecast. Emerging market and developing economies will contract by 3.0% this year – their first contractions as a group for at least 60 years. Considerable uncertainty remains about the course of the pandemic and the pace of any economic recovery. The Secretary-General of the United Nations, António Guterres, believes the “unparalleled economic shock” of COVID-19 could put development gains at risk and notes that rebuilding to pre-crisis levels of employment and output may take years. The international development community anticipates that the severe and diverse impacts of the pandemic will exacerbate the challenge of achieving the targets set out in the UN Sustainable Development Goals. The impact of the pandemic has not been uniform; some countries have been less affected or have coped better. Economically, countries that rely on sectors such as tourism, commodity exports and global trade have been hardest hit. Nevertheless, all emerging economies have faced challenges in addressing the health crisis against a backdrop of collapsing exports, dwindling remittances and tightening international credit conditions that require the implementation of austerity measures. Despite the immediate challenges, many emerging economies have had the fortitude and foresight to de-risk their USD debt and assess their strategies during the crisis. As exchange rates spiked, public credit offices sought ways to limit their exposures and better protect themselves by fixing rates in dollars. As Claudia Franco, Head of Treasury Client Solutions for the Inter-American Development Bank, notes, borrowers had to go back to the drawing board; as well as de-risking, many countries have had to supplement their debt management plans and measures. John Finnigan Global Head of Development Organizations, Citi Valentina Antill Head of Cross-Border and Public Sector Solutions, Citi Maryna Asipchuk Cross-Border and Public Sector Solutions, Citi