Countries with primitive economies and recovery scenarios

According to the assessment, the primitive market group was heavily influenced by the Covid-19 epidemic, they are the group that most susceptible to fading due to the weak resilient ability. However, there is a possible scenario of the economic recovery of these countries.


The emerging-market group currently comprises 34 economies, from Argentina, Bahrain and Bangladesh to Togo, Tunisia and Vietnam. Typically, these markets will suffer when domestic economic activity weakens, rather than because of external factors. Because of the new economy, the connection and dependence on big countries in the world are not high. This is also an advantage to help reduce the burden of supply disruption.

But besides that, some of those countries will show weaknesses as external sources of income (through tourism and remittances) suffer unprecedented shocks. For example, with an economy that is already struggling like Sri Lanka, a sharp drop in tourism could be a big shock. Countries such as Nigeria and Egypt will be hardest hit when exports and remittances decline.
In other cases, disruptions to the real economy caused by blockade measures can make gaps in the financial system more visible. This is especially true for Bangladesh, which has had a bad debt ratio at government-owned banks amounting to about 30% of the country's GDP and the banking sector has suffered losses in recent years due to poor liquidity.

Based on assessments of the actual situation and potential of each region, it can be seen that some countries have the ability to recover and grow strongly once the Covid-19 epidemic is under control. In particular, the Philippines, Peru and Vietnam are the countries with the best position to recover thanks to the flexible banking sector and sustainable foreign exchange reserves.

Vietnam is internationally appreciated for the effectiveness of the Covid-19 epidemic control. The number of Covid-19 infections was low and there were no casualties, which helped the Vietnamese government quickly reopen earlier than many countries and until now, economic activities have gradually returned to normal. As of mid-May, activities in all fields have completely recovered, except for retail but sales have only decreased by 15% compared to before.

For the Philippines, the country has huge foreign exchange reserves, low deficits and the banking system has abundant liquidity. Moreover, the ratio of foreign debt to GDP is only 24%, less than half the average of the emerging-market bloc. The Philippines' foreign exchange reserves are sufficient to pay for imports of goods for nearly 12 months, much higher than other ASEAN countries such as Thailand or Indonesia. Financial and monetary policies have been expanded significantly but not threatened to the stability of the macroeconomy.

Similar to the Philippines, Peru is aggressively implementing measures to address the health challenges caused by the Covid-19 epidemic. Economically, the country also benefits from more open monetary and fiscal policies. The level of deficit and total debt are both low. Even with the stimulus package valued at 8% of GDP, a high level compared to emerging markets, Peru still has a budget surplus thanks to many domestic and foreign sources of income.

Even Egypt and Pakistan, two countries with high total debt and are considered vulnerable, can grow dramatically. The governments of both countries reaffirmed their commitment to tax and civil service reforms and continued to participate in the International Monetary Fund's loan program.

In particular, in Pakistan, the economic outlook has improved markedly since Imran Khan won the election in 2018. Within a short time, Pakistan recorded significant progress in business psychology and economic policy. The State Bank has also implemented a comprehensive reform to model a modern central bank under the new leadership.

Meanwhile, the unrest in Egypt is significantly reduced thanks to the government's access to the International Monetary Fund's capital ... Like Peru, this country is also allowed to participate in the European bond market. This, together with large foreign exchange reserves, will help Egypt cope with the decline in foreign exchange earnings due to weakening tourism and remittance flows, while also keeping the flow of foreign investment into the domestic debt market.
In other words, these countries are creating the best opportunities for investors. In general, the primary market can grow stronger than developed markets in the short and medium-term. In the recently released World Economic Outlook, the International Monetary Fund also forecast that the emerging market will recover strongly, with economic growth likely to return to pre-COVID-19 levels. Meanwhile, the developed market block will remain weak in the long term.

The investment world should not ignore the potential of emerging markets on the post-COVID-19. The very simple reason is that the government balance sheet is capable of rapid recovery, the system governance situation is improved and the trajectory of growth is promising.

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