Insights from the International Monetary Fund (IMF) Spring Meetings in Washington DC

After attending the IMF Spring Meetings in Washington DC at the end of April 2025, the Emerging Markets Fixed Income team summarized their key insights on nine key emerging and frontier markets currently undergoing interesting developments.

Zambia – recovery and strong cooperation with the IMF

Zambia’s economy already started to rebound in the fourth quarter of 2024. Overall economic growth in 2024 was 4%, much higher than had been expected after several downward revisions of growth forecasts. The ongoing recovery has not only been supported by the mining sector, but also by banking, construction and telecommunications. In contrast, the agricultural and electricity sectors have continued to be a drag on growth due to adverse weather conditions.

For 2025, the outlook can be described as constructive despite the overall deterioration in global sentiment. The authorities expect the economy to grow by close to 7%. This positive forecast reflects a strong rebound in the agricultural sector, with a good start to the harvest, as well as higher production numbers in the copper mining sector.

Kenya – clouds on the horizon if the authorities do not act decisively

Kenya’s bond market and the Kenyan shilling have performed well over the last 14 months on the back of a successful asset-liability management program carried out in the first quarter of 2024. Over the same period, the Central Bank of Kenya was able to accumulate foreign exchange (FX) reserves that were at critical levels going into 2024. While these positive developments helped to restore investor confidence, Kenya has struggled in terms of fiscal consolidation. Plans by the administration to overcome these fiscal challenges triggered social unrest and anti-government protests.

In terms of the current account, lower oil prices are highly beneficial for Kenya. The country imports around 50 million barrels of oil every year. Tourism revenues have been very strong and were recently revised upwards. Remittance flows remain at a high level.

Dominican Republic – dedicated to stability

The Dominican Republic has seen steady economic growth of 5% per annum for a long time, supported by exceptional political and social stability since the 1990s. There is a strong consensus within the country and successive governments have pursued a steady path of reforms. The main short-term downside risk to potential growth is the strong correlation between the growth of the US economy and that of the Dominican Republic.

One area where the Dominican Republic has room for improvement is its monetary policy framework. Its central bank has had an official inflation targeting regime in place since 2012, but it also places a strong emphasis on FX stability, which can be contradictory at times. Nevertheless, inflation and inflation expectations are well anchored and are not a reason for concern.

Costa Rica – next step investment grade rating?

Costa Rica has a very positive story to tell, with a good track record of reforms and a more diverse and stable economy. Its potential growth is estimated to be around 4%, while forecasts for 2025 have been revised downwards on the back of the possible impacts of US tariffs, with close to 50% of exports affected.

The country has experienced positive ratings momentum over the last few years and is a potential candidate to become an investment grade issuer in the foreseeable future, not least as the central government debt-to-GDP ratio has fallen from almost 70% in 2021 to around 55% (estimated) in 2025. The Eurobond legislation that is currently going through congress could accelerate rating upgrades.

Honduras – potential beneficiary of US tariffs

In general, Honduras’ story is a positive one, with recent developments such as the implementation of changes to the monetary policy framework. Honduras has also demonstrated fiscal prudence in recent years, bringing debt-to-GDP levels down to 45%. However, the energy sector continues to hold back economic growth as demand exceeds supply.

Honduras is currently benefiting from high coffee prices and increased production. It could also position itself as a trading partner in the so-called “maquila sector” that includes the textile industry, as competitors in Asia (Bangladesh, Vietnam, Indonesia, Sri Lanka) are likely to face higher trade tariffs. Sine Honduras has spare capacity, the positive effect would be immediate.

Brazil – walking a tightrope

Brazil is back to where it was before the inflationary boom in 2021 and 2022 boosted tax revenues and underlying GDP. It is battling again against investors’ perceptions of fiscal dominance. Although the Central Bank of Brazil has maintained its independence, the gross debt-to-GDP has soared to 90%. As a result, it is questionable how the country can keep borrowing at double digits, crowding out private investments, and still grow.

The current real interest rate of over 9% is nevertheless very attractive, and we expect the local bond curve to behave well in the near future. In the 2026 elections, President Lula da Silva could face a challenge from a right-wing candidate. That would likely lead to a positive change in risk premia embedded in Brazilian bond yields closer to the elections.

Colombia – a cautionary tale

Colombia has faced challenges with lower-than-expected tax revenues and frequent changes of finance ministers. The reason for these issues is excessive spending compared to the actual realizable tax income. The problems started to accumulate back in 2023. To keep the deficit in check, corporate taxes were brought forward, leading to a massive shortfall in tax revenues in 2024. Colombia is now grappling with pending bills of USD 10 billion. The country needs to take decisive action if it wants to avoid losing its last investment grade rating from Moody’s.

The lack of a credible plan to tackle the deficit is likely to keep the Colombian risk premia high until there are signs of a potential political change. Despite a very attractive real yield, Colombia is now vulnerable to economic shocks as it has less leeway in terms of its financing options.

Georgia – can the growth honeymoon period continue?

Georgia has exhibited strong economic growth post-Covid, averaging 9% annually. The country has benefited from the geopolitical situation in the region, attracting flows of capital, trade and people. The IT sector in particular has grown substantially and been a strong contributor to exports. At the same time, inflation has remained in check. The fiscal and debt situation has also improved.

While the macroeconomic backdrop for the country looks favorable, certain political/geopolitical factors could potentially threaten this success story. Domestic tensions and discussions about the future direction of the country sparked protests as a tug-of-war unfolded between EU-friendly forces on the one hand and pro-Russian forces on the other. Further, a potential peace deal in the Russia-Ukraine conflict could trigger a reversal of the positive effects mentioned above.

Armenia – building buffers

The question on investors’ minds regarding Armenia is how vulnerable the country is to changes in Europe’s security architecture, especially in the context of a potential peace deal in Ukraine. Armenia has been accumulating FX reserves in recent years and the external buffers are strong. The build-up of fiscal buffers was placed on hold because Armenia needed to integrate over 100,000 refugees from Nagorno-Karabakh in 2024.

If a peace agreement is reached between Ukraine and Russia, some migrants would likely return to Russia. The capital that flowed to Armenia at the start of the war was either from retail/professionals or western companies moving their operations from Russia. Armenia is still reliant on Russian gas and the majority of its remittances comes from Russia. However, the improved diversification of the Armenian economy and attractive real yield-to-volatility justify a continued positive outlook.