Frontier Markets’ Recovery Slows as Policymakers Combat Inflation

The post-pandemic recovery in Frontier Markets (FMs) slowed in 4th quarter of 2021, as many countries struggled to contain elevated inflation, as shown in Fitch Ratings’ latest ‘Frontier Vision’ chart pack.
FM central banks have sought to stamp out inflationary pressures with further monetary policy tightening in response to higher energy costs, rising food prices and supply-chain disruptions.

Countries reporting a noticeable slowing in annual real growth in the last quarter of 2021 included Costa Rica, El Salvador, Georgia, Honduras, Jordan, Mozambique, Paraguay, Senegal and Zambia while in Mongolia the economy experienced an outright contraction. With inflation rates already at high levels, the war in Ukraine is likely to push up Consumer Price Inflation rates even further given the relatively high weight of food in national CPI baskets among frontier economies.

Central banks in FMs began tightening monetary policy in mid-2021 and have so far shown little sign of stopping as policymakers combat inflation, support domestic currencies and seek to preserve monetary stability.
The Central Bank of Sri Lanka raised its lending and deposit facility rates by a record 700 basis points (7%) in April 2022 to 14.5% and 13.5%, respectively. Other notable rate hikes have been implemented in Armenia, Belarus, Costa Rica, Gabon, Georgia, Ghana, Jamaica, Mongolia, Mozambique, Paraguay, Rwanda and Uzbekistan among others.

Fitch’s quarterly ‘Frontier Vision’ chart pack tracks high-frequency macroeconomic data for the countries included in the J.P. Morgan’s Next Generation Markets (NEXGEM) Index.
The charts cover five years of historical data and the choice of data series has been harmonised as far as possible across all countries to facilitate comparisons.
The index comprises countries representing sub-Saharan Africa, Latin America