Frontier Markets Weekly, August 13th 2023

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By Dan Keeler, Ken Stibler, Noah Berman and Nojan Rostami


World Bank stops funding to Uganda over anti-gay law

The World Bank said on Tuesday that it will not provide any new loans to Uganda, citing the country’s recently passed anti-gay bill, which it said “fundamentally contradicts the World Bank Group’s values.” Since the law’s enactment in May, the bank has been evaluating its financing of projects in Uganda.

The act imposes strict penalties on homosexuality, including the death sentence in some cases. It drew condemnation from major donors of aid, including countries and international institutions.

A Ugandan wearing a mask with a rainbow sticker at a Gay Pride parade in 2015. Photo: Isaac Kasamani/AFP via NPR

US President Joe Biden called the law “a tragic violation of universal human rights” and warned of economic sanctions. The US has committed $237 million in aid to Uganda this fiscal year, far short of the $763 million it gave last year. The UN, which has called the law “draconian and discriminatory,” closed its human rights office in Uganda last Saturday amid concerns over the legislation’s implementation, the AP reports.

Niger sanctions sting Nigeria

Penalties levied by Ecowas against Niger in the wake of the recent coup are hurting businesses in the north of neighboring Nigeria, whose economy is closely intertwined with Niger’s, AP reports. Member countries of the Economic Community of West African States closed their land and air borders with Niger on July 30 in a move aimed at pressuring the Nigerien army to return power to the democratically elected president it ousted in a coup last month.

In a meeting on Thursday, ECOWAS leaders agreed to activate a “standby force” that could intervene militarily in Niger.

Trucks stuck at the Niger-Nigeria border. Photo Mohammed Babangida/AP

In Nigerian border towns, the prices of imported Nigerien goods, such as animal products and commodities, have increased since the coup. According to a resident of Katsina, a city near the border, the price of corn has increased 24% since last week, Africanews reports.

South Africa and China seal more than $2 billion in trade agreements

South African and Chinese companies agreed to $2.2 billion in trade dealsduring a visit by Chinese commerce minister Wang Wentao to Johannesburg, Bloomberg reports.

The deals are aimed at increasing South African manufacturing exports to China and Chinese investment in South Africa and come ahead of a planned state visit by Chinese President Xi Jinping later this month.

A container vessel docked at Cape Town. Photo: Dwayne Senior/Bloomberg

China-Africa trade grew 11% last year to $282 billion, according to the Forum on China-Africa Cooperation. South Africa is China’s biggest export market on the continent, and China’s biggest source of critical minerals including diamonds and gold, the South China Morning Post reports.


Pakistan’s PM sets course for elections after predecessor jailed

Pakistani Prime Minister Shehbaz Sharif on Wednesday called for parliament to be dissolved, a step that precedes national elections. Elections are poised to take place without former prime minister Imran Khan, who Pakistan’s election commission banned from participating in politics for five years on Tuesday.

The decision followed Khan’s arrest last weekend on charges of corruption and his sentencing on Saturday to three years in prison for illegally concealing assets while in office. An advisor to Khan tweeted that “the government is trying to eliminate Khan from the political landscape of Pakistan.”

Pakistan’s parliament building. Photo: Bloomberg

Pakistan’s constitution says that elections should be held within 90 days if parliament is dissolved sooner than its scheduled date, as it was this week. However, a senior Pakistani official said there is no chance elections will be held this year, Al Jazeera reports, as the government awaits the results of a digital census announced last week. Pakistani law requires elections to take census figures into account.

Sri Lanka edges closer to domestic debt restructuring

Sri Lanka is set to pass a law that will bring the country one step closer to restructuring its $42 billion domestic debt. The legislation will provide a framework for pension funds to swap defaulted bonds for new securities with longer maturities.

Restructuring domestic debt could serve as a catalyst for negotiations with Sri Lanka’s external creditors, including IndiaChina, and the so-called Paris Club group of wealthy countries, Bloomberg reports. Such an arrangement will be critical for maintaining funding from the IMF, which approved a $3 billion bailout for Sri Lanka in March.

The country hopes to finalize its domestic debt restructuring by September.

Sri Lanka’s central banker Nandalal Weerasinghe. Photo: Dinuka Liyanawatte/Reuters

Sri Lanka defaulted on its debt in May last year amid an economic and political crisis. The debt restructuring plan, unveiled in June this year, calls for domestic and international creditors to take a 30% haircut on their bond holdings, Reuters reports.

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Middle East

Iran doubles-down after US bulks up forces in Gulf

After a recent spate of ship seizures by Iran in the Persian Gulf, the US has deployed more than 3,000 Marines and sailors to the Middle East this week to “safeguard freedom of navigation in the region,” ABC reports.

Responding to the increased American presence, Iran’s Revolutionary Guards Corps said it was “capable of reciprocating any mischief by the Americans.” The announcement comes on the heels of last week’s IRGC military drills on islands claimed by the UAE.

Syria’s Assad plays down prospects for improving international relations

Syria’s President Bashar al-Assad this week tempered expectations of a rapprochement with Turkey and rejected the possibility of a summit with President Recep Tayyip Erdoğan, claiming no talks can happen until Turkey first withdraws troops from Syrian territory. In a rare TV interview Assad also addressed the issue of repatriating Syrian refugees, saying he would welcome them home—and claimed some 500,000 have already returned.

Assad speaks during an interview with Sky News Arabia in Damascus. Photo: Syrian Presidency via Reuters

Assad claimed the main obstacle to repatriation was Syria’s economic situation and what he calls the “image of war,” brushing aside claims of human rights violations and war crimes.

Asked about Syria’s recently-restored ties with the Arab League, Assad said it would be “unrealistic” to expect relations to return to normal within months, and ardently denied Arab League accusations of complicity in the illegal captagon drug trade affecting the region. 

Saudi summit on Russia’s invasion of Ukraine raise hopes for peaceful settlement

China this week joined peace talks in Saudi Arabia aimed at ending Russia’s war on Ukraine, fueling hopes that the Asian giant’s approach to the conflictcould be changing. Although it still refused to condemn Russia’s invasion, China’s delegation reportedly “participated actively” and has agreed to work further on a potential peace deal.

A major trading partner of China’s, and a key collaborator with Russia on OPEC+ policy, Saudi Arabia hopes to leverage its unique position to serve as a mediator, raising its profile on the world stage.

Russian Foreign Minister Sergei Lavrov and China’s top diplomat Wang Yi in Moscow during Wang’s visit to the Russian capital in February. Photo: Alexander Nemenov/AFP/Getty Images

While China’s participation was seen as a sign of progress, it has since released a statement confirming that China and Russia remain “trustworthy and reliable good friends and partners.” A readout of its foreign ministry’s statement said China will “uphold an independent and impartial position, sound an objective and rational voice, actively promote peace talks, and strive to seek a political solution on any international multilateral occasion.”


Turkish policy changes yield initial success with budget surplus

After a prolonged period of deficits, Turkey has reported a surprise current account surplus, a significant shift that holds promise for the country’s prospects, the FT reports. The bright spot for an otherwise struggling economystems from a surge in tourism and President Recep Tayyip Erdoğan’s post-election policy adjustments.

The central bank’s data reveal a $674 million surplus in June, boosted by a 20% rise in foreign visitors over the first half of this year. The Turkish lira’s devaluation and lower global oil prices have also played a role.

A rise in foreign visitors is helping boost Turkey’s economy. P{hoto: Moe Zoyari/Bloomberg

Although Turkey’s current account dynamics are shifting, challenges remain. Its cumulative deficit for the first half of 2023 is $36.8 billion, although Barclays projects the deficit will contract to $15 billion next year as loan growth and economic activity slow. Recent data also show a slight rise in unemployment to 9.6% and subdued industrial production growth.

Ukraine bonds benefit from improved balance sheet and growing investor optimism

Ukraine’s government bonds have surged in value over the past two months, reflecting increasing investor optimism for the eventual restructuring of the country’s war-torn debt, the FT reports. Bond prices collapsed following Russia’s invasion last year and a subsequent move to freeze interest payments on foreign currency bonds.

Prices have rebounded by over 50% since early June, making Ukrainian bonds some of the strongest performers in global fixed-income markets this year. This resurgence is attributed to a steady influx of foreign aid boosting currency reserves and improved economic forecasts.

Kyiv’s foreign reserves have climbed to an all-time high of $41.7bn as financial aid from western countries continues to flow. Photo: AFP

Kyiv’s foreign reserves have reached an all-time high of $41.7 billion, buoyed by ongoing financial assistance from western countries. The IMF’s review of Ukraine’s $15.6 billion loan program and its strong growth forecasts have also played a role in the bond rally, while the country’s economy is benefitting from a growing trend of Ukrainians returning home and an increasingly dynamic innovation ecosystem that has emerged to support the war. 

Latin America

Candidate’s assassination prompts state of emergency in Ecuador

The assassination of presidential candidate Fernando Villavicencio has cast a shadow over Ecuador’s upcoming election, escalating concerns about political violence in the country. Villavicencio, a former journalist and outspoken critic of organized crime and corruption, was gunned down at a campaign event in Quito. President Guillermo Lasso responded by declaring a two-month state of emergency and three days of national mourning.

Lasso linked the assassination to gang violence that has surged in Ecuador, presenting it as an attempt to disrupt the electoral process. Six Colombians were arrested in connection with the assassination.

Villavicencio speaks during a campaign event before his assassination. Photo: API/AP

The killing adds to the turmoil in the lead-up to the elections, which were triggered by President Guillermo Lasso’s decision to dissolve the congress rather than face impeachment charges. Villavicencio’s death occurred on the same day that a poll showed him in second place among presidential candidates, prompting other candidates to call for unity and a pact for governance to navigate the escalating crisis.


Increased remittances offer a lifeline for repressive regimes

Supported by surging worldwide migration, a record influx of remittances is offering vital support to autocratic governments, the Wall Street Journal’s Ryan Dube reports. These remittances reached an unprecedented $647 billion last year, nearly doubling since 2010, outstripping foreign direct investments and international aid combined.  

This flow of money serves as a lifeline for fragile states and autocratic regimes, bolstering their economies while enabling leaders to maintain their grip on power. In Venezuela, a third of households rely on remittances to counteract the country’s economic collapse, with similar trends observed in Central AsiaEgypt and Nicaragua.

African migrants heading for Europe in a wooden boat in the Mediterranean Sea. Photo: Joan Mateu Parra/Associated Press

In countries such as Tajikistan and Nicaragua, where remittances constitute a significant portion of GDP, the cash is helping ease pressure on autocratic leaders by diminishing demands for reform. And while the funds can alleviate immediate problems, overreliance on them can hinder long-term development and exacerbate governance issues. 

What we’re reading

Niger tensions threaten Chinese projects, as dam building stops (Nikkei)

South Africa’s Ramaphosa pardons predecessor Zuma and other offenders (Al Jazeera)

Key Singapore bank UOB moves to cut off Myanmar (Nikkei)

North Korea’s Kim ‘calls for bolstering war preparations’ (Yonhap)

Thailand’s prolonged political deadlock weighs on economy (Nikkei)

Factories across Asia are struggling to attract young workers (WSJ)

Centrist leader designated as new Montenegro PM (Balkaninsight)

US broadens sanctions against Belarus (WSJ)

Poland digs in to defy EU over lignite mine (FT)

Ukraine war risks boosting fuel smuggling in the Balkans (Balkaninsight)

Grain exports back in Russia’s sights in Ukraine war (FT)

Russian rouble slides as war chest is spent (Bloomberg)

UN operation succeeds in removing 1m barrels of oil from decaying tanker off Yemen coast (UN News)

Lebanon’s army seizes ammunition after Hezbollah fight in Christian town (Al Jazeera)

Lebanon’s defense minister ‘safe after gunfire hit car’ (Reuters)

Tourism and remittances will support Lebanon’s consumer spending in short bursts (FrontierView)

Dates, coffee and camels—Saudi Arabia’s sovereign-wealth fund bets big at home (WSJ)

Gulf nations poised to invest billions in Pakistan (WSJ)

Iran seeks South African support to hasten BRICS membership (Bloomberg)

Guatemala: The US ‘pushes guns on a country it labels violent and corrupt’ (Bloomberg)

Argentina’s next president is on a collision course with hyperinflation (Bloomberg)

Retail sales keep plunging in Argentina (Mercopress)

Peru’s underwhelming H1 performance underscores Boluarte’s need for consensus (FrontierView

Paraguayan president-elect criticizes EU over trade proposals (Mercopress)

Uruguayan orange producers said to be retaining cheap Argentine labor (Mercopress)

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