Aurelia Butler

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LONDON (Reuters) – Some World Bank staff have criticised an assessment of Ethiopia’s finances conducted with the International Monetary Fund, questioning whether the analysis that underpins the country’s debt restructuring may be “faulty”.In an internal paper seen by Reuters, World Bank consultant Brian Pinto and its chief economist Indermit Gill assess the Debt Sustainability Analysis (DSA), dated July and prepared by the IMF and staff of the International Development Association (IDA), the World Bank’s fund for poorest nations.The authors suggest that based on the DSA, Ethiopia is facing a short-term liquidity crunch, and not a long-term solvency issue, a point of contention between the government and holders of its $1 billion international bond that is in default. “We found that the bondholders have interpreted the DSA correctly, but the DSA itself may be faulty,” Pinto and Gill wrote in the paper from earlier this month. “The disagreements about Ethiopia’s debt sustainability will be repeated as other countries become debt distressed.” Asked about the paper, a World Bank spokesperson said: “We generally don’t comment on internal deliberations between the World Bank and the IMF, or any of our partner institutions.”Ethiopian State Finance Minister Eyob Tekalign told Reuters IMF and World Bank teams had just revisited the DSA as part of the latest review of the Fund’s loan programme and there had been no major change to the position. A spokesperson for the IMF confirmed its staff visited Ethiopia in November for the second review of the Fund’s loan programme, adding that each review includes an update to the DSA, without elaborating on its contents. The spokesperson did not comment on the memo. Pinto and Gill did not respond to a request for comment.Bondholders and Ethiopian officials have been in a tense standoff. At the heart of the debate is whether Ethiopia – as bondholders argue – faces a liquidity crunch, which could be addressed by rescheduling debt, or whether it has longer-term solvency problems that require debt writedowns known as haircuts.The DSA said that some export-related indicators pointed to both liquidity and solvency pressures.In October, Eyob told Reuters that writedowns were unavoidable and the DSA showed a solvency issue. Investors, in rejecting the assessment, have also slammed a government proposal that indicates an 18% haircut. The comments in the paper suggest some World Bank staff sympathise with bondholders’ views. “Based on the July 2024 DSA, Ethiopia should be trying to find ways to lengthen debt maturity and increase exports to address its liquidity problem, not asking bondholders to take a haircut,” Pinto and Gill wrote.FINANCIAL LIFELINEThe report gives credence to years of complaints by the private sector over the DSAs and the levels of debt that countries can manage – and thus what amount lenders must write off when a country defaults.Ethiopia became Africa’s third country to default on its international bonds in as many years in December 2023. Despite the relatively small size of its bond debt – compared with Zambia’s $3 billion and Ghana’s $13 billion – progress on restructuring has been slow and tangled in controversy.IMF funding is often the sole financial lifeline available to countries in a debt crunch, and key to unlocking other financing sources – including World Bank backing – with delays in debt reworks adding yet more pressure on government finances, companies and populations.Pinto and Gill have argued for some time for a change to the Debt Sustainability Framework for low-income nations, designed to inform borrowing decisions by poor countries. The framework requires regular joint World Bank and Fund DSAs which analyse a country’s debt burden and vulnerabilities over the coming decade.”It is hard not to conclude that Bank-Fund DSAs for Ethiopia have not provided accurate information to markets, nor perhaps to the Ethiopian government,” the authors said. More

The Fed slashed interest rates by 25 bps at its latest FOMC meeting this month, aligning with market expectations. This marks the fourth cut since September, bringing the total reduction to 100 basis points and placing the policy target range at 4.25%-4.5%.However, the updated dot plot presented a more hawkish stance than anticipated. The median projection now reflects only 50 basis points of cuts for 2025, a notable shift from the 100 basis points indicated in the September dot plot. The Fed’s outlook suggests that policy adjustments could extend through 2027.Markets reacted negatively to the announcement. Equities fell sharply, bond yields climbed, and the dollar strengthened.During the post-meeting press conference, Fed Chair Jerome Powell conveyed optimism about the state of the economy and the outlook for 2025. Powell acknowledged that economic growth had surpassed the Fed’s recent expectations, while inflation remains above the 2% target. As a result, the central bank intends to adopt a more measured approach to further rate reductions.”Our own views on the economic outlook are similar to the Fed’s, and we therefore have adjusted our rate cut forecast in line with the new dot plot,” UBS senior economist Brian Rose said in a note.The bank now anticipates 25 basis point cuts in both June and September, totaling 50 basis points for 2025, down from previous expectations of quarterly cuts amounting to 100 basis points over the year.While this more cautious approach is currently favored, Rose highlights that “a March rate cut could quickly be back on the table if there is bad news from the labor market early next year.”The Fed’s hawkish stance fueled a rally in the U.S. dollar, with the dollar index briefly surpassing 108. This trend aligns with interest rate movements over the past two years and is expected to persist into 2025.Political factors, including Donald Trump’s upcoming inauguration, are likely to keep the dollar elevated in the near term. Yet, UBS highlights limits to further dollar strength, citing overvaluation, minimal expectations for U.S. monetary easing in 2025, and the market’s focus on the positive aspects of Trump’s policies. Any deviation from these expectations could trigger a dollar pullback.UBS views current dollar rallies as selling opportunities, forecasting EURUSD to return to 1.10 later in 2025. More

NEW YORK (Reuters) – For many people, financial resolutions might be lighthearted fodder for small talk at holiday parties.Not for Cynthia Luna. She is deadly serious about them.The financial planner from Waxahachie, Texas sends all her clients New Year’s cards with their resolutions written down in black and white. If you stray, prepare to hear about it.“The right way is to use baby steps and make them achievable and encouraging – because you don’t want to fail at your financial resolutions,” says Luna, a principal at Moonshot Financial Group. Financial resolutions start the new year on the right foot. In fact, 65% of Americans are drawing them up for 2025, according to a new study from money manager Fidelity Investments.The winning responses are classic: Save more money (43%), pay down debt (37%) and spend less (31%).But for one of the only times in the history of Fidelity’s 16-year survey, people looking to save money are favoring short-term goals over long-term ones, by 55% to 45%.That indicates people do not really have the luxury of thinking 20 or 30 years off and are instead focusing on right now – paying the rent or mortgage, buying gas, covering monthly utility bills and putting food on the table.“This will be a year of living practically,” says Rita Assaf, vice president of retirement products at Fidelity, who analyzed the findings. “Short-term savings goals are just more of a priority right now. People are very concerned about the day-to-day.”Millennials are the most determined generation in setting financial resolutions, with 74% of them making money goals for the New Year. That compares to 70% of Gen Z, 67% of Gen X and only 52% of Baby Boomers.There is an art to making financial resolutions, though. To nudge you in the direction of success, here are a few key pointers from financial professionals:GO SMALLYou may have heard the career advice, ‘Go big!’ But when it comes to financial resolutions, the smarter path is the exact opposite – go small.Think too vague and grandiose – you want to be a multimillionaire, maybe – and you will likely fall short, be depressed about your failing, and drop your goals altogether.Instead, focus on tiny, daily, concrete steps that will eventually get you where you want to go.“Have as few goals as possible, the fewer the better,” says Thomas Scanlon, a financial advisor with Raymond (NS:RYMD) James in Manchester, Connecticut. “Start small: If all you can do is put an extra $100 a month towards your credit card balance, do it.”AUTOMATION IS YOUR FRIENDOne problem with resolutions is that they tend to rely on the human will, and the human will is fallible.Your resolution is to not be tempted by those shopping discounts you love? Good luck with that because sooner or later, you will probably fail. In the Fidelity survey, 37% of people admitted they busted out on last year’s resolutions.The smart thing is to take choice out of your own hands whenever possible, so your will does not even come into play. Automate your monthly retirement plan contribution. Automate your bill payments. If you get a raise, automate saving a percentage of that, too.“I am a big fan of automation,” says W. Michael Lofley, a financial planner in Stuart, Florida. “The less you have to think about your financial resolutions, the easier it is to stick to them. It’s ‘Set it and forget it.’ ”REVISIT AS NEEDEDA New Year’s resolution is a snapshot in time, of what your goals are right now. Can those goals change in a month, or three months, or six months? Of course.There is no shame in revisiting your resolutions occasionally and changing them, if necessary. It does not necessarily mean you have ‘failed’; it means that different priorities have emerged, and that is okay.“I usually suggest people revisit those goals quarterly, or even more often if it helps you,” says Fidelity’s Assaf. “You never know what is going to arise throughout the year, and if something happens, it is perfectly fine to revise your resolutions.” More