Western countries this week increased their criticism of China, the world's largest bilateral creditor, as the main obstacle to debt restructuring for the growing number of countries that cannot service their debts.
US Treasury Secretary Janet Yellen said on Friday that high inflation, tightening monetary policies, currency pressures and capital outflows were increasing debt burdens in many developing countries, and progress was urgently needed.
She said she discussed those issues during a dinner with African finance ministers and in many other sessions.
The Group of Seven rich nations also met African finance ministers, who worry that the focus on the conflict in Ukraine is draining resources and attention from their pressing concerns.
“Everyone agrees Russia should stop its war on Ukraine, and that would address the most significant problems that Africa faces,” Ms Yellen told reporters at the International Monetary Fund and World Bank annual meetings in Washington.
But she said a more effective debt restructuring process was also needed, and China had a big role to play.
“Really, the barrier to making greater progress is one important creditor country, namely China,” she said. “So there has been much discussion of what we can do to bring China to the table and to foster a more effective solution.”
As China is the missing piece in the puzzle of a number of debt talks under way in developing markets, the Group of 20 launched in 2020 a Common Framework to bring creditors such as China and India to the negotiating table along with the IMF, Paris Club and private creditors.
Zambia, Chad and Ethiopia have applied to restructure under this new, yet-to-be tested mechanism. Sri Lanka is set to start talks with bilateral creditors, including China, after a $2.9 billion staff level agreement with the IMF under a similar platform.
The Paris Club creditor nations last month reached out to China and India seeking to co-ordinate on Sri Lanka's debt talks, but are still awaiting a reply.
The world's poorest countries face $35bn in debt-service payments to official and private-sector creditors in 2022, with more than 40 per cent of the total due to China, according to the World Bank.
Spanish Finance Minister Nadia Calvino, who chairs the IMF's steering committee, told Reuters on Thursday that there was increasing concern about China not participating fully in debt relief efforts, and that China had not sent officials to participate in person at this week's IMF and World Bank meetings.
“China is a necessary partner. It's indispensable that we have them in the room and in the discussions when it comes to debt relief,” Ms Calvino said, adding that many heavily indebted countries were also being hit hard by inflation and climate shocks.
German Finance Minister Christian Lindner also joined the growing criticism. China has said it would not take part in some cases unless the IMF and World Bank also took a cut.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
