Sovereign Vibe analyzes the interlinkages between sovereign debt, global macroeconomics, and capital markets, with a focus on emerging markets and developing economies (EMDEs). The purpose of this project is to provide independent, data-driven insights that help shed light on the international financial architecture’s symbiosis with geopolitics, current events, and financial markets, and, hopefully, make actionable recommendations to stakeholders.
Following several decades of globalization, a new era of deglobalization from the 2020s onwards has been ushered in by rising populism, inequality, trade frictions, geopolitical tensions, and fallout from COVID-19, inter alia. Many countries are now seeking to decrease their interdependence, by re-shoring or friend-shoring supply chains and energy supplies. Public policy and sovereign balance sheets will play an even more important role in driving the global economic agenda over the coming years, in contrast to the centrality of multinational corporations during the post-Cold War period.
There is already clear evidence of less broad-based solidarity among countries. The divide between rich and poor is stark, with the Global North hoarding personal protective equipment and vaccines throughout the pandemic, mirroring the growing inequality within many countries. Russia’s invasion of Ukraine, the resulting sanctions, and tensions with China are reconfiguring economic relationships, possibly leading to a decoupling of the global economy into distinct blocks. Western backing of Ukraine and united opposition to Russia is matched by the Global South’s disenchantment with the international financial institutions and Western policies.
These fractures threaten to further derail the United Nations’ Sustainable Development Goals and the Paris Climate Accords, both of which are already far off-track from their 2030 targets, at a time when EMDEs desperately need international capital to meet these objectives. The annual SDG financing shortfall for EMDEs is likely above $4 trillion, though no one can be certain of the true figure. Failing to bridge this gap will lead to further advanced-developing economy divergence and worsening climate, health, and migration crises.
Dysfunction in the international financial architecture is exacerbating the vulnerability of many countries experiencing sovereign debt distress, stemming from weakened growth, heavy and expensive public debt burdens, a strong dollar, and higher costs of capital. Policy reform is badly-needed at the International Monetary Fund to align its program design and sovereign debt restructuring with the SDGs and climate commitments. Improved coordination with China and private creditors is just as important, given the emergence of these two groups as major creditors to EMDEs in the 2010s.
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