Is the Washington Consensus Dead?

Is the Washington Consensus Dead?

So this week I wanted to take a quick look at how our beloved emerging and frontier markets compare fiscally .

In today’s newsletter I’m only showing you overall budget balances as a starting point. This is part of a larger deep-dive cross-country fiscal comparison that I’m working on.

As I’ve done previously, I segment the countries by income level, into upper-middle and lower-income groups. Here I rely on the IMF’s World Economic Outlook April 2024 database, using the forecasts for the current year.

Small Island States & “Big EM”

The first thing that stands out when comparing the upper-middle (first chart) and lower-income (second chart) country groups is that “only” one UMIC - the Maldives - has a budget deficit at or below -10%/GDP.

In contrast, five LMICs - Timor-Leste, Kiribati, Ukraine, Egypt, Zimbabwe - are at or below this threshold.

No wonder the Maldives is currently on the hunt for a bailout to avoid the first-ever sovereign default on an Islamic bond.

And taken together, these charts both underscore the frailties of small-island states. In addition to the ones mentioned above: St. Vincent, Tonga, Fiji, and Vanuatu also have yawning budget deficits.

The Washington Consensus

These lists are also noteworthy for the presence of large deficits in large emerging markets keen to use their borrowing power. Chief among them is China at -7.4%/GDP, followed by Brazil, South Africa, Mexico, and Turkey.

Though by now it’s fair to say that the Washington Consensus principle of fiscal discipline is effectively dead, with the US on track to run a -7%/GDP fiscal shortfall this year.

Among large emerging markets, only China is more profligate. Unlike the US, however, it is trying to spend its way out of an economic slump.

So for any countries out there in need of an IMF program, the message is “do as I say, not as I do” when told to rein in their government spending.

A Positive Note?

Not really, unless Jamaica or a chainsaw counts. The countries that run fiscal surpluses have one or more of the following characteristics:

• Mineral wealth: Equatorial Guinea, Libya, Turkmenistan, Republic of Congo, Angola, Turkmenistan, Mongolia

• Small islands with no borrowing power: Haiti, Lesotho, Tuvalu, Palau, Grenada, Micronesia, São Tomé and Príncipe

• Fiscal discipline: Jamaica, Argentina

Headline Roundup

Sovereign Debt

• Sri Lanka:

  • Sri Lanka Bondholders Hold New Round of Talks With Government

  • China EXIM Bank has completed Sri Lanka Bilateral Debt Restructuring?

• Ukraine: Ukraine concludes historic restructuring of US$20.5 billion of international bonds

• Pakistan: Pakistan sanguine about approval of $7bn IMF bailout package on Sept 25

• Maldives: Maldives hunts for bailout to avoid first Islamic sovereign debt default

Geoeconomic Fragmentation

• Russia:

  • Shocking findings show Kazakh company keeps Russian warplanes in air by sourcing French avionics

  • Russian IT sector hit by latest round of US sanctions

• India-U.S.: India and the US bolster defence ties with preliminary Security of Supply Arrangement

• Serbia-Israel: Serbia, Israel Presidents Announce Free Trade Agreement

Global Electoral Calendar

Highlights

• Sri Lanka: Bailout Blues: Elections in the Aftermath of Economic Collapse

The Big Picture

Looking back

Check out earlier updates for 2024 electoral results here and here.

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