LONDON, May 20 (Reuters) - A number of frontier market countries are facing rising funding gaps with Nigeria standing out as a high-risk case, the Institute of International Finance (IIF) said in its latest report.
Assessing the external financing needs of smaller, often riskier developing countries, the IIF report found that external funding needs of these frontier economies were lower than those of their larger emerging market peers. However, buffers in the form of FX reserves also were weaker than those of major developing countries, the IIF said.
“In the near-term, financing needs will rise mostly due to widening current account deficits, while debt service gets heavier in the medium-term,” IIF deputy chief economist Sergi Lanau said in a note to clients.
“External risk will thus rise but will not generally reach the levels seen in the 1990s, when debt distress materialized in many frontier markets.”
Lanau noted that buffers were limited in Ethiopia and Zambia, as well as Mongolia. On the other hand, Uzbekistan, Honduras and Ivory Coast enjoyed a more comfortable level, he added.
“Nigeria stood out as a high-risk case where a large funding gap is likely,” Lanau added.
Reporting by Karin Strohecker; Editing by Kirsten Donovan