What Has Changed in EM

  • Malaysian bonds may be dropped from FTSE Russell’s World Government Bond Index (WGBI) due to liquidity concerns
  • Pakistan Finance Minister Asad Umar has resigned from the Cabinet
  • Poland continues to overhaul its pension system
  • The Bank of Israel said it is considering FX intervention if the shekel continues to appreciate
  • Egypt’s parliament overwhelmingly approved a constitutional amendment that would allow President El-Sisi to remain in office through 2030
  • Press reports suggest that Turkey’s central bank reserves are much lower than reported
  • Argentina central bank President Sandleris said it would hold its currency band at current levels until the end of the year
  • Brazil pension reforms look likely to be bogged down in Congress

Malaysian bonds may be dropped from FTSE Russell’s World Government Bond Index (WGBI) due to liquidity concerns. The company is reviewing overall accessibility of global bond markets, adding that other countries may be affected. Chinese bonds may be added to the WGBI watchlist for future inclusion. Elsewhere, FTSE Russell said Israel now meets the criteria for joining WGBI. All these markets will be reassessed against the eligibility criteria at a September review.

Pakistan Finance Minister Asad Umar has resigned from the Cabinet. He had been asked to give up his post and move to the Energy Ministry. Reports suggest Umar had lost the confidence of Prime Minister Khan and the military even as the nation negotiates an IMF program. An IMF delegation is scheduled to visit Pakistan at the end of April and so Umar’s replacement needs to be installed quickly. Another delay to an IMF deal seems likely.

Poland continues to overhaul its pension system. The government proposed transferring all assets in the privately-managed portion of the pension system totaling PLN162 bln ($43 bln) to individual pension accounts. The transfer of assets will likely take effect in 2020. This announced change follows the roll-out scheduled for later this year of a new voluntary, employer-provided pension program like the defined-contribution 401(k) system in the US.

The Bank of Israel said it is considering FX intervention if the shekel continues to appreciate. This marks a shift from Governor Yaron’s earlier stance that the exchange rate should be market-determined “without the need for significant intervention in the foreign exchange market.” The central bank has ended its FX purchase program that was meant to help offset the impact of FX inflows from natural gas production on the shekel. It’s not clear if the central bank is thinking about restarting this program or simply intervening on an as-needed basis.

Egypt’s parliament overwhelmingly approved a constitutional amendment that would allow President El-Sisi to remain in office through 2030. The change would extend the presidential term to six years from four years currently and would be retroactive to include his current term. The change must be ratified by a national referendum this weekend, but passage is seen as a foregone conclusion.

Press reports suggest that Turkey’s central bank reserves are much lower than reported. The FT wrote that the central bank engaged in some currency swaps with commercial banks to inflate its foreign reserves. Rather than the $28 bln being reported for usable reserves, the report suggested that the true number was below $16 bln. Frankly, both numbers are simply awful. However, the real takeaway is that the institutional framework appears to be breaking down further in Turkey.

Argentina central bank President Sandleris said it would hold its currency band at current levels until the end of the year. This would halt the policy of gradual depreciation as policymakers are clearly signaling concern about excessive peso weakness. The band is currently 38.562-49.904. The bank has already promised to keep the LELIQ rate above 62.5% for the rest of April and to freeze the amount of currency in circulation until year-end.

Brazil pension reforms look likely to be bogged down in Congress. The lower house’s Constitution and Justice Committee decided to delay its vote on whether the bill can proceed in Congress. The delay came after several centrist parties sought changes to several parts of the bill. The lower house leader of Bolsonaro’s PSL party said there’s “no need to hurry” on a committee vote on the bill even as lower house Speaker Rodrigo Maia said the government is dragging its feet.