We have just returned from Washington, where the IMF and the World Bank held their annual Spring Meetings. As the first 100 days of President Trump’s second term mark a turning point for the global economic order, this was an opportunity to meet with members of the U.S. administration, such as Treasury Secretary Scott Bessent, policymakers from emerging markets across all regions, as well as economic and political analysts. We also took the pulse of global investors, particularly those from the U.S., who remain the primary participants in the emerging market (EM) debt space.
In seeking to reduce its bilateral trade deficits, the U.S. administration has, in its approach, put an end to the so-called American exceptionalism that had guided international financial markets for several years. While the risk of recession in the U.S. increased, Europe and China could see improved economic outlooks, supported by unprecedented fiscal stimulus measures—highlighted by the historic lifting of the debt brake in Germany.
In this environment of heightened uncertainty, while investors remain cautious, their overall stance on emerging market debt remains constructive. The heterogeneity of the asset class in terms of sovereign risk offers selected investment opportunities regardless of broader market conditions. Although EM sovereign debt is not immune to macroeconomic and financial developments in the U.S., country-specific factors matter and help cushion the potential negative spillovers from the American economy. Moreover, the expected structural reallocation of capital from the U.S. to the rest of the world - driven by a weaker dollar - should benefit emerging economies by facilitating the return of capital flows.
Once again, this year, Argentina stood out, thanks to the quality of its adjustment program anchored in fiscal discipline. Defying caricatural perceptions, while the country has reduced public spending in real terms by 30%, expenditures directed toward the most vulnerable populations have increased by 2%. As a result, the poverty rate declined by 15 percentage points to 38% in 2024. Following a new $20bn IMF support package and the partial lifting of capital controls, the upcoming midterm elections represent the next key milestone. Argentina’s experience could inspire others in the region, where presidential elections are scheduled this year in Chile, Brazil, Colombia, and Peru in 2026, potentially paving the way for a wave of political change. The popularity of Salvadoran President Nayib Bukele - domestically and regionally - due to the drastic reduction of violence in his country also increases the likelihood of success for candidates emphasizing security, traditionally a focus of the political right.
Regional Focus: Latin America – A New Dynamic in U.S. Relations
In a global context marked by supply chain fragmentation, the U.S. is shifting its strategy toward nearshoring and reshoring, favoring geographically proximate partners. Latin America - particularly Mexico - is a direct beneficiary. The region is considered a strategic asset due to its proximity and industrial potential. Under the Trump administration, several key priorities are shaping the regional policy: controlling illegal immigration, renegotiating trade agreements, and taking a firm stance against socialist regimes, particularly in Venezuela, Cuba, and Nicaragua. While adopting a tough line toward these states, the U.S. government remains open to targeted engagement should conditions evolve. Mexico is at the heart of U.S. concerns. Recent negotiations with new President Claudia Sheinbaum have proven more constructive than anticipated. The automotive sector remains a sensitive issue, driven by economic and political considerations. The U.S. emphasizes the need to rebalance trade and redefine value chains. Sheinbaum, who has adopted a pragmatic approach and speaks English, is seen as a more effective interlocutor than her predecessor, AMLO, with whom cooperation on security and rule of law issues was limited. Migration remains a critical aspect of bilateral relations, and several countries in the region are actively cooperating with Washington on repatriation policies. The closure of the Venezuelan border has alleviated concerns about new waves of uncontrolled migration. Some leaders, such as Nayib Bukele (El Salvador) and Javier Milei (Argentina), are viewed as aligned partners. The U.S. administration supports their reform agendas but maintains a cautious stance. In the case of Argentina, any support from the U.S. Treasury will depend on how Milei manages financial commitments, particularly those involving China (currency swaps, strategic investments). Washington expects clear signals of economic sovereignty vis-à-vis Beijing, even though China no longer plays the role of regional lender it once did in 2017, now favoring targeted investments. The current administration is also critical of what it sees as an excessive reliance on debt-driven multilateral financing. It advocates for a more balanced model focused on equity investment and participation in strategic assets - without seeking to control governments. The objective is to "plant a flag": to establish a concrete and lasting presence in the region. The U.S. sees the potential for a new phase of global free trade, with Latin America playing a central role. U.S. policy favors a differentiated, bilateral approach that recognizes the diversity of national contexts. Each relationship is considered an opportunity for mutually beneficial cooperation.
Country Focus: Angola – An IMF Program Remains an Open Option
The decline in oil prices (below the $70/barrel forecast in the budget) and the tightening of international financing conditions are exacerbating the country’s fiscal imbalances. According to the latest IMF projections, the budget deficit is expected to widen to -2.3% of GDP (compared to the initial -1.1% projection). In response, Angolan authorities must assess whether the shock is temporary or structural. In the former case, it could be absorbed through domestic borrowing. A structural adjustment would be necessary in the latter, involving stricter fiscal policies and a devaluation of the kwanza. The authorities are currently examining several scenarios. With an average oil price of $65/barrel, the budget deficit could reach 2.5% of GDP (compared to the current forecast of 1.7%) while maintaining a primary surplus. Should oil prices continue to fall, the first adjustment measures would target current expenditures, followed by investment spending. Should prices drop below $50/barrel, a revised budget would be submitted to Parliament, as only 45% of expenditures can be cut without congressional approval. Angola has planned $8 bn in financing for 2025, but access to international markets is nearly closed, with Eurobond yields exceeding 12%. This makes the planned external financing needs ($1.5 bn) difficult to secure and increases pressure on domestic markets. Against this backdrop, turning to an IMF program has become a credible option. While no formal request has been made, discussions have occurred between the Minister of Finance and the IMF. Such a program could boost investor confidence, but political resistance remains, especially given the unpopular reforms it may entail ahead of the 2027 elections. The program would aim to support the Treasury and the balance of payments while taking stock of political sensitivities in the run-up to elections. In the meantime, foreign exchange reserves have risen to nearly $16 bn, providing a sufficient buffer against short-term pressures. In addition, the country continues to repay its debt to China due in 2025 through an escrow account, which amounts to nearly $3 bn—of which $1.5 bn is blocked as a minimum reserve, leaving the remainder freely usable. Finally, with no access to international markets, Angolan authorities have discussed debt buyback operations with rating agencies. While these are considered credit events (defaults), they would improve bond liquidity, restore investor confidence, and ultimately help the country regain access to sustainable financing conditions.
Country Focus: Senegal – No Debt Restructuring in Sight
Following inaccurate statements made by previous Senegalese authorities, we expect the IMF to grant the country a program waiver with corrective measures rather than requesting the repayment of already disbursed funds.This incident, which occurred under the oversight of the IMF, will lead to an internal audit of the institution, which will also be associated with the judicial investigation related to the hidden debt. A new IMF program will require an agreement on the fiscal consolidation path and an updated Debt Sustainability Analysis (DSA).
While Senegal will continue to exceed debt sustainability thresholds for some time, the IMF should focus on the overall trajectory rather than short-term overruns.The 2025 budget targets a deficit of 7.1% of GDP for this year, 5% in 2026, and 3% in 2027. Although these targets appear credible on paper, the Fund will assess the realism of these objectives and the policies required to achieve them. The planned fiscal consolidation effort of 4.5 percentage points of GDP in 2025 is ambitious but feasible. It would involve reducing subsidies and tax exemptions—two key priorities for the IMF—and cutting public investment. The institution will also evaluate the concrete measures needed to achieve the ambitious target of a 24% revenue increase. The IMF GDP growth forecasts is 8.4% for this year, driven mainly by the oil and gas sector. With a government committed to fiscal adjustment, the likelihood of reaching an agreement with the IMF is high. Thanks to more effective revenue mobilization, total revenues rose by 12% year-on-year in Q1 2025, while expenditures increased by only 1.3% over the same period. Further expenditure rationalization measures are required, some of which will be included in an upcoming revised budget bill. Reduction in the public wage bill should generate savings of up to 1.2% of GDP by 2027, and subsidies capped at 1.9% of GDP. This budget should align priority projects with the new “Senegal Vision 2050” strategy. According to the latest IMF projections, a successful implementation of the fiscal consolidation plan would set public debt on a downward trajectory - from 114% of GDP in 2024 to 97% by 2030. Beyond the IMF, Senegal has access to other sources of financing. A recent issuance on the regional market was oversubscribed threefold, and the authorities plan to repeat such operations at least in June and September this year. Also, discussions are ongoing with other financial partners, including the African Finance Corporation (AFC), international banks, and other multilateral institutions. Finally, the authorities have reaffirmed that they neither intend nor need to undertake any form of debt restructuring.
Country Focus: Panama – Commitment to Maintaining Investment Grade Credit Rating
The authorities remain committed to restoring investor confidence. Despite the economic impact of the closure of the Cobre Panama mine, the COVID-19 pandemic, and other external shocks, the country aims to preserve its credit rating and restore public finances. The government is focusing on reducing the fiscal deficit, targeting 4% of GDP this year, a goal facilitated by the clearance of payment arrears and the recent merger of pension systems. Efforts are also underway to reopen the Cobre Panama mine, which accounted for approximately 4.8% of GDP before its closure. Ongoing discussions suggest a potential reopening, with steps made to reach a compromise with First Quantum Minerals, the Canadian company that owns the mine. While public opinion initially opposed the reopening, a portion of the population is beginning to support the idea, recognizing the economic losses caused by the shutdown. On the fiscal front, expenditure consolidation remains a key challenge. The government has attempted to curb public spending, but legislative resistance, especially regarding mandatory education expenditures, has hindered progress. Authorities also bank on increased tax revenues (equivalent to 2.5 percentage points of GDP). However, analysts remain skeptical about the achievability of this target in the absence of planned tax hikes. Internationally, Panama seeks to maintain strong relations, particularly with the United States. The issue of Chinese presence in the Panama Canal has sparked diplomatic tensions, but Panamanian authorities are confident that an agreement can be reached that addresses U.S. concerns while safeguarding the country’s economic interests. Relations with the U.S. appear to be improving, with discussions underway on infrastructure projects, including upgrades to the Pacific-side port and the construction of a liquefied petroleum gas (LPG) canal. In terms of investment, Panama has seen an inflow of more than $3 bn over the past three months - equivalent to about 3% of GDP - demonstrating continued investor confidence in the country’s economic stability despite fiscal concerns. In financing, the government has planned $5.4 bn for this year. Panama benefits from a reputation for institutional stability and remains optimistic about its ability to meet its financial commitments despite increasing reliance on external financing and low foreign exchange reserves. Looking ahead, Panama remains confident in its economic prospects. The diversification of its economy and its role as a regional service hub, particularly in financial services, continue to provide strategic advantages. The reopening of the Cobre Panama mine could unlock new growth opportunities. Authorities also emphasized transparency and responsible fiscal management, with strong technical support from the IMF. The overarching goal remains to improve the country’s credit rating and attract more investment. While challenges persist - particularly around the mine reopening and fiscal consolidation - Panama appears well-positioned to navigate an uncertain global economic environment.
Country Focus: Turkey – Addressing the Dollarization Risk Without Undermining the Macro Adjustment Process
The arrest of Ekrem Imamoğlu and the subsequent tariff shock triggered an immediate market reaction, leading to a significant unwinding of Turkish carry trade positions. Despite a substantial drain on foreign exchange reserves (an estimated $50 bn reduction, equivalent to around 80% of net reserves as of April 25), the Central Bank of the Republic of Turkey (CBRT) managed to prevent a disorderly depreciation of the Turkish Lira. For now, the risk of re-dollarization remains contained. Demand for U.S.D comes primarily from the corporate sector as households continue to favor the Turkish Lira (TRY), supported by rising interest rates and an expected decline in inflation. TRY-denominated deposits have shown marginal growth, and physical foreign currency demand remains moderate, reflecting a partial anchoring of inflation expectations. In terms of economic activity, growth is expected to decelerate, weighed down by weakening domestic demand and less favorable external conditions. However, falling energy prices, especially oil, are providing timely support. Lower energy costs help curb imported inflation, improve the current account balance, and ease pressure on the currency. The current account deficit, estimated at 2.5% of GDP, remains manageable, and excluding gold imports, the current account balance posts a 1% surplus. From the authorities' perspective, the main risk to the Turkish economy lies in a potential reorientation of Chinese exports toward the customer base of Turkish industries. The fiscal trajectory is aligned with the disinflation objective. Despite potential revenue underperformance due to slower growth, the government has reiterated its commitment to containing public spending. A privatization plan ($4 bn already realized, with $15–18 bn targeted over the next 12 months) should partially offset revenue losses. The fiscal deficit should narrow starting in 2025, contingent upon macroeconomic stabilization. On the geopolitical front, Turkey stands to benefit from ongoing global realignments. Its strategic location, competitive production costs, and extensive network of free trade agreements make it a natural candidate for friend-shoring in the context of global supply chain reconfiguration. As such, Turkey could benefit from rising geopolitical tensions (as an arms exporter) and de-escalation (through involvement in reconstruction efforts). Moreover, the absence of major electoral events until 2028 provides a rare window of political stability in the region. Strong support for the current economic program and ongoing efforts to improve relations with the Kurdish population could further enhance the sovereign risk profile.
