This month’s coverage of the Americas includes an update on Argentina, where President Mauricio Macri’s center-right administration is pressing ahead with unpopular reforms aimed at dismantling the market controls imposed by the leftist FPV governments that dominated the political scene for more than a decade. Thus far, Macri’s efforts have produced more pain than progress. A resolution of a dispute that has prevented government payments to holders of bonds that were restructured in the aftermath of the country’s massive sovereign default in 2002 appears to be in view, but the president is facing resistance from opponents in the divided Congress, who are moving toward approval of a bill that would prohibit mass layoffs by both public- and private-sector firms. The update will take a closer look at key elements of Macri’s reform program, and discuss the prospects for their successful implementation, as well as the implications for the country’s medium-term economic outlook.
In the Middle East and North Africa, our coverage includes a revised report on Saudi Arabia, where the royal government has unveiled an economic reform program that is aimed at ending the kingdom’s dependence on oil, prompted by the fiscal pressures created by low oil prices, generous social spending, and an expanded military role in the region. Plans include the partial privatization of the health, education, and oil sectors, an accelerated “Saudization” of the work force, the creation of a $2 trillion sovereign wealth fund, a more intense focus on developing mining potential, and investment in the domestic defense industry.
Targets for economic growth, expansion of the private sector, job creation, and income from the sale of state-owned assets are ambitious to the point of being unrealistic, particularly given the changes in social attitudes that will be required if, for example, Saudi Arabia is to develop a flourishing tourism industry. The report will assess the overall prospects for the success of the effort, discuss potential obstacles to progress in key areas, and identify the opportunities that the reform push holds for foreign investors. In addition, PRS will examine the political implications of Vision 2030, both in terms of the broad impact and the career prospects of Deputy Crown Prince Mohammed bin Salman, the main author of Vision 2030.
Looking at Sub-Saharan Africa, the Botswana government of President Ian Khama remains broadly stable despite a slump in global diamond prices which has put a strain on the economy. With no electoral tests until 2019, the ruling Botswana Democratic Party (BDP) faces no immediate challenges to its rule. The principal mid-term risk to political stability is posed by a looming succession battle in the BDP, but factional jockeying for power is unlikely to gain steam until the final stages of Khama’s mandate, which ends in March 2018.
The authorities expect mining revenues to fall by 8% in 2016 due to the continued fall in global commodity demand, as the struggling sector faces further job losses and production cuts, and. Still, Botswana is set to return to positive growth after an estimated 0.3% contraction in 2015, propped up by a stimulus package and an increase in capital expenditure in the 2016 budget. Fiscal balance will remain firmly in the deficit for a second year running, but with reserves estimated at 11.7 months of imports of goods and services, Botswana has sufficient buffers to withstand the fall in revenue.
In Asia, the focus will be on Myanmar, which has been attracting substantial investor interest since it began embarking on administrative and economic reforms under the military-backed government five years ago. The question remaining is whether this trend will continue without undue interference from the military, and, crucially, whether these positive economic trends will translate into true political reform in the wake of the landslide victory for Aung San Suu Kyi’s National League for Democracy, which has emerged as the dominant force in the legislature, and has secured the presidency for its candidate. Our in-depth report seeks to answer these questions by looking at the formal role now played by the pro-democracy campaigner, who is still constitutionally barred from holding the presidency, and to what extent the junta will allow her to participate fully in policy-making, bearing in mind the difficulties of ethnic conciliation in a country riven by serious internal unrest. Our report also looks at the practical challenges affecting businesses operating in Myanmar, where corruption and bureaucratic obstacles persist, not least in limiting inflows of machinery and trucks across the borders with China and Thailand, and assesses whether (and how) the new government’s plans will make a difference.
Our coverage of Western Europe this month casts the spotlight on the recent general election in Ireland to look at the implications for the fiscal stability program in what is still one of the euro zone’s most highly indebted sovereign borrowers. As expected, support for the Fine Gael-Labour coalition slumped, leaving Prime Minister Enda Kenny still in control for a second successive term, but as head of a government that will rely on the support of Fine Gael’s traditional rival, Fianna Fáil, and independent lawmakers. Our report looks at the deficit and debt projections, as well as broader economic indicators, to assess current prospects in light of the political agreement between the two main parties. The forced retreat on controversial plans to introduce charges for household water supplies raises questions about the government’s ability to finance the investments required to improve the dilapidated infrastructure, and, just as importantly, Ireland’s relations with its EU partners.
Turning to Eastern Europe, PRS will focus on Hungary, where Prime Minister Viktor Orbán’s populist government is now in the second half of its term, and the main governing Fidesz party holds a solid lead over its rivals in polls of voter preferences. The hard line adopted by the government in response to a refugee crisis has enabled Fidesz to steal a march on its far-right competitor, Jobbik, which would likely benefit from any loss of support for Orbán’s party. However, the government’s policies have contributed to tensions with the EU that could jeopardize Hungary’s access to development funds. With economic growth forecast to slow once again in 2016, there is a clear near-term risk that Orbán will resort to crowd-pleasing populist gestures that have negative implications for foreign firms.