Reserve flunkies

Reserve flunkies

When writing last week’s piece on the IMF’s shoddy deal with Pakistan, I was blown away at the country’s astonishingly-low level of international reserves.

$9.5 billion for a $350 billion economy. That’s only around 3% of GDP and 1-2 months of import cover. Such a low amount of cash on hand isn’t exactly best practice, whether it’s sovereign, corporate, or personal finance.

So it got me thinking: is Pakistan really such an outlier? Or am I just crazy or ill-informed?

Lower-middle income countries

Turns out I was right: among countries in its income bracket, Pakistan has the lowest reserves-to-GDP ratio of all.

Bolivia, Egypt, Swaziland, Nigeria, and Indonesia are not far behind, at 10% or less.

Yet international reserves are far from the only macro indicator that matters of course. So I suppose we should be forgiving of Indonesia, which generally has much of its (macro) house in order.

Upper-middle income countries

Looking at upper-middle income countries, only three in-sample are sub-10%: Argentina, Ecuador, and Costa Rica. I suppose Latin America really does have a savings problem.

As expected, these slightly richer countries generally exhibit higher reserve-to-GDP ratios than their poorer counterparts. No surprise there.

What is surprising, however, is to see oil-exporters like Azerbaijan, and Kazakhstan sub-15 percent.

Mexico, Brazil, and Colombia also produce oil and also have low ratios. But, then again, they are also Latin American…

“What’s the big deal?”, I hear you asking.

Well, Ukraine is a lower-middle income country fighting a war and undergoing debt restructuring. Yet Kyiv still manages to have more in the bank than wealthier countries with much lower-levels of security threats.

To me, that speaks volumes about economic management.

Headline Roundup

Sovereign Debt

• Mozambique:

  • Mozambique to recover $825mn from ‘tuna bonds’ fraud

  • The Republic of Mozambique wins multibillion-dollar corruption case

• Ukraine:

  • Ukraine, Key Bondholders Reach Deal on $20 Billion Overhaul

  • Ukraine Secures Financial Reprieve, Agrees to $20 Billion Debt Restructuring

• Sri Lanka:

  • Sri Lanka's Post-Default Macro (Part 1)- Sovereign Default & External Surpluses

  • Japan Resumes Funding Sri Lanka After Debt Restructure

• Argentina:

  • Milei’s market honeymoon ends as investors question economic plan

  • Argentina’s Debt Service Prospects Remain Unclear After Latest Policy Moves

  • Fitch says default on Argentine bonds in foreign currency likely

• Global:

  • GDP linkers are a grand illusion

  • Documents resulting from the 3rd G20 Finance Ministers and Central Bank Governors Meeting

  • Fragile economies are trying to enhance their financial resilience.

• Israel: Inside the sophisticated sales operation funneling billions from US state and local governments to Israel

Geoeconomic Fragmentation

• US:

  • Kamalanomics: Harris’s economic vision for America’s middle class

  • The Border Situation in the US is a Symptom, Not the Illness, of the Labor Shortages Most Developed Countries Will Continue to Face

• China:

  • No Quick Fixes: China’s Long-Term Consumption Growth

  • Why Chinese consumption cannot completely be blamed for global imbalances |

  • Global solar panels global glut caused by Chinese overproduction

• Global:

  • A Brief History of International Trade

  • Can Brazil Reinvigorate a Beleaguered G20?

• Ukraine: Slovakia will halt diesel supplies to Ukraine if Lukoil oil flow is not restarted

• Europe: EU prepares two-step trade plan to tackle Donald Trump

• Iran: Iranian Oil Exports Have Risen Sharply, Facilitated By Malaysia

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