Frontier market economies that are sizeable net importers of fossil fuel, such as Sri Lanka, will face increasing pressure on their balance of payments as energy prices remain elevated, Fitch Ratings said in its quarterly Frontier Markets Economic Monitor.
Net energy exporters are set to benefit in relative terms, the agency said, while importers face both higher import bills and a renewed inflation risk.
“Higher energy prices are also liable to push up inflation,” Fitch noted, adding that “prior to the energy price shock, most frontier markets had inflation under control, and central banks were mostly able to hold or cut policy rates.” Real policy rates are typically higher than in developed markets, Fitch pointed out, leaving room for monetary tightening if needed.
The chart pack tracks high-frequency macroeconomic data for countries included in J.P. Morgan’s Next Generation Markets (NEXGEM) Index, covering sub-Saharan Africa, Latin America and the Caribbean, the Middle East and North Africa, Europe, and Asia.
The assessment echoes warnings from the IMF’s Spring Meetings in Washington, where the Fund said commodity-importing emerging market and developing economies (EMDEs) face the sharpest toll from the war in West Asia. Sri Lanka’s March inflation reading of 2.4% remained well anchored, but the full impact of sustained oil above $95 per barrel has yet to feed through to consumer prices.
The warning lands as diplomatic efforts to end the US-Israel war on Iran remain uncertain, following the US seizure of the Iranian merchant vessel Touska and the US refusal to lift the Hormuz blockade until a deal is reached. The US-Iran ceasefire is set to expire Wednesday evening Washington time.
