<\/p>\n
With rising interest rates making us focus more on debt \u2013 it won’t surprise any debt investors that in MSCI EM, the government debt to government revenues ratio is highest in Egypt.<\/strong><\/p>\n <\/ins><\/div>\n But I suspect most equity investors don\u2019t know that India is second.<\/p>\n Now I’m a big fan of India (see The Time Travelling Economist) but I’m also a fan of ASEAN nations which have the same double demographic dividend and they don’t carry the same debt ratio. It’s not a coincidence I’m at FIM Partners, where FIM’s Frontier fund has over 50 per cent exposure to Indonesia, Vietnam and Philippines.<\/p>\n India’s weakness on revenues is a south Asian theme, hence Pakistan’s economic crisis and Sri Lanka’s default. Even Bangladesh doesn’t do great \u2013 PS, anyone has a friend in Dhaka who\u2019d entertain my 23-year-old son in Dhaka for an hour or two, over the next month, do let me know.<\/p>\n China’s debt\/revenues ratio is rising significantly \u2013 and will continue to rise \u2013 given my \u201cChina = Japan + 35 years\u201d working assumption. More fiscal stimuli means more Chinese debt.<\/p>\n What else should I flag? That Kuwait, Saudi and UAE are 1st, 2nd and 3rd best on this metric. FIM has a MENA fund for them too.<\/p>\n In fact, Kuwait gets richer when interest rates rise \u2013 because it\u2019s SWF is so big \u2013 more so than anyone else in the world. \u00a0A-ha, Norway.<\/p>\n Turkey and the US are going to see 10 per cent of all their government revenues go on interest payments next year. \u00a0But I suspect that\u2019s not what you are looking at in the chart below.<\/p>\n <\/ins><\/div>\n Egypt, which is already enduring a tough 2024 (IMF figures for 2004 refer to fiscal year 2023\/24) \u2013 with over 60 per cent of revenues being spent on interest like Pakistan which has already managed for such a ratio for a year.<\/p>\n Egypt does come out poorly in the latest IMF figures, thanks to a budget deficit that will double to over 10 per cent of GDP in 2024, owing to their high debt and high interest rates \u2013 and because so much of their debt is domestic. \u00a0Its interest payments as a \u00a0per cent of revenues are forecast to be the worst in the 190 countries the IMF forecasts for this data. It tells us why the CBE is reluctant to push interest rates much higher.<\/p>\n The silver lining is that Egypt\u2019s debt 1) is largely locally held and 2) is largely in domestic currency, so inflation does help erode it away. \u00a0The IMF thinks debt\/GDP will fall from 93 per cent to 88 per cent in 2024. \u00a0Nonetheless, scary stuff. \u00a0Ghana, Zambia and Sri Lanka all had ratios in or close to that box until they defaulted.<\/p>\n Looking at MSCI Frontier (below) \u2013 no surprise Pakistan comes out top and South Asia isn\u2019t great at collecting budget revenues (see Bangladesh too). \u00a0More interesting is that Tunisia comes out well.<\/p>\n <\/ins><\/div>\n Kazakhstan and Romania among the best \u2013 and Vietnam pretty good (better than China 10 years ago).<\/p>\n World GDP is estimated at $104 trillion in 2023 (up from the \u201ceasier to remember\u201d $100 trillion in 2022).<\/p>\n US is \u00bc (26%) of the world economy at $27 trillion, so 50 per cent larger than<\/p>\n China at 1\/6 (17%) or $18 trillion.<\/p>\n