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El Salvador

July 28, 2021

Flash Note: Copying Populist Monetary Policies

Rumor has it that the Bukele government planned to launch its own USD-pegged stablecoin called “Colon-Dollar” by the end of the year

We believe that a stablecoin in El Salvador would have similar uses to those of Electronic Money in Ecuador

We believe that Bukele’s silence regarding the launch of a stablecoin could be a sign that the plan was discarded

ELSALV 8 5/8 02/28/29 Price

ELSALV 7 5/8 02/01/41 Price

Zambia

July 26, 2021

Country Report: The Future at Stake

General Elections are less than a month away, and there are increasing concerns about violence during the event.

Democracy has suffered a setback during Lungu’s first term, and the upcoming event could further undermine the legitimacy of institutions.

Amnesty International has denounced attacks on freedom of expression and peaceful assembly from the ruling party.

The Democracy Index, estimated by The Economist Intelligence Unit, qualifies Zambia as a hybrid regime, characteristic of government with high levels of autocracy and corruption.

An agreement with the IMF, and an acceleration in the vaccine process, could give an impulse to t...

ZAMBIN 8.97 07/30/27 Price

Argentina

July 23, 2021

Strategy Viewpoint: A Land of Opportunities 

In our report “Just Ignore It Comes from Argentina” we argued that Argentinian corporative bonds at times offer attractive returns.

Now, we broaden our focus to include other Argentina-based corporate issuers, as YPF and Pampa Energía.

We also include Petrobras and Petróleos Mexicanos as a way to compare.

ARGENT 0 1/8 07/09/30 Price

Lebanon

July 22, 2021

Country Report: Oops, Hariri Did It Again

Hariri's resignation increases the uncertainty about Lebanon's future even more.

We analysed three political scenarios for coming months: 1) A government supported by FPM and Hezbollah, 2) a transitional government before parliamentary elections and 3) no government.

Under high uncertainty, we believe that the third scenario related to political stagnation and increased social unrest is the most likely.

While we welcome President Aoun's announcement that the next elections will be held on time, we are cautious and do not rule out that the ruling elite may seek to postpone these elections.

HOLD: Valuations are very attractive, but the hellish political s...

LEBAN 7 03/20/28 Price

LEBAN 7 1/4 03/23/37 Price

Argentina

July 21, 2021

Flash Note: A Light at the End of the Tunnel?

Buenos Aires Province made a new offer, but for now, it is unclear the level of acceptance.

ARGENT 0 1/8 07/09/30 Price

Bolivia

July 19, 2021

Country Report: To Live Within One’s Means

Bolivian authorities projected an overall fiscal deficit of -9.7% of GDP for 2021 in the budget approved last year.

The budget included the issuance of an international bond for USD 3.0 bn.

The macroeconomic conditions have limited the possibility to tap the international capital markets.

The non-financial public sector overall balance recorded a deficit of 0.6% of GDP between January- April, and we forecast a -5.3% of GDP gap for 2021.

HOLD: Economic indicators are not good while local analysts are not confident about the ability to issue, but for now debt burden is not a problem.

BOLIVI 4 1/2 03/20/28 Price

Turkey

July 15, 2021

Flash Note: Missing in Action

The MPC left the interest rate unchanged for the fourth straight month.

The committee members acknowledged the risk posed by high levels of inflation and inflation expectations, but did not commit explicitly to raising the rate if prices keep rising.

Instead, it looks like authorities are hoping that inflation will dwindle in the last quarter of the year, potentially providing an opportunity to please president Erdogan with a cut to the interest rate.

So far, there are no reasons to believe that inflation will decelerate in the next months.

TURKEY 6 1/8 10/24/28 Price

Suriname

July 15, 2021

Country Report: Not as Easy as It Sounds

On average, electricity subsidies were equivalent to USD 141mn (about 3.7% of GDP) per year from 2015 to 2019.

Since early June, the government has tried to introduce a reform to reduce the subsidy to the electricity sector.

The government decided to reformulate the first proposal, after the Surinamese massively rejected it

We estimate that the subsidy would reach USD 128mn without the reform, if the government keeps the subsidy at USD 23.5mn, it will save USD 105 mn per year, equivalent to 4.8% of GDP.

SELL: There are no news about the restructuration and current prices make risk/reward unattractive.

SURINM 9 1/4 10/26/26 Price

Ecuador

July 14, 2021

Country Report: Oil or Nothing

Guillermo Lasso issued Decree 95 reforming the oil sector last week, as the government aims to double oil production in the next five years.

The highlight of the decree is the revival of “participation contracts”, which might increase the attractiveness of the industry to foreign investors.

According to the Oil-Energy Coalition, USD 10 bn in investments are required to double production to a million barrels per day.

It will take some time to update the rest of the legal framework and a lot of effort to convince investors given the expected local indigenous resistance to the reform.

HOLD: Ecuador is slowly trying to reactivate the economy despite persist...

ECUA 0 1/2 07/31/30 Price

Argentina

July 14, 2021

Country Report: A Sustainable Improvement?

The fiscal deficit narrowed to 0.7% of GDP between January and May, from 3.3% in the same period of 2020.

The narrowing of the fiscal deficit was partly due to the increase in soybean prices and other commodities and the fact that some of the COVID-19 funds remain unused.

Export duties were the main driver behind the increase in tax collection during Jan-May 2021, mainly thanks to the rise of soybean prices and the recovery in exports.

EMFI Analytics expects a fiscal deficit of 3.8% of GDP in 2021, from 8.5% in 2020.

There are downside risks to our forecast, as the government could increase spending on social protection programs before the legislative elections.

ARGENT FLOAT 12/15/35 Price

ARGENT 0 1/8 07/09/30 Price

Ghana

July 12, 2021

Country Report: Too Many Cooks Spoil the Broth

After a series of financial system reforms, the number of banks in Ghana went from 36 in 2017, to the current 23 institutions.

According to the Ministry of Finance, the cost of the financial sector cleanup rose to GHS 16.4 bn (4.6% of GDP).

The industry now has a smaller number of players but is more sustainable, better regulated, resilient, and better suited to support economic growth.

The financial soundness indicators at the end of Q1-2021 show robust numbers in capital adequacy, earnings, liquidity, and asset quality.

HOLD: The commodities cycle and the issuance of a new bond maturing in 10 years keep the market more constructive with respect to the country, al...

GHANA 7 5/8 05/16/29 Price

GHANA 8.627 06/16/49 Price

El Salvador

July 12, 2021

Strategy Viewpoint: Pensions on the Sight

The nationalization of the AFP seems a real possibility.

It is clear that the objective is fundamentally fiscal and confiscatory.

AFPs have a total USD 12.1 bn in AUM, of which USD 7 bn is invested in Pension Investment Certificates and USD 2.3bn in other government securities.

The remaining USD 2.8bn is likely to be appropriated to finance the fiscal deficit.

Nominally, the debt-to-GDP ratio would drop by 20 percentage points, from about 90% today to 70% of GDP.

However, this does not solve the financial unsustainability of the pension system, an adjustment must go through changes in the retirement age and pensions.

ELSALV 5 7/8 01/30/25 Price

ELSALV 8 5/8 02/28/29 Price

Lebanon

July 09, 2021

Country Report: Living in Darkness

Electricity generated by Electricité du Liban barely covered 63% of the demand in 2018.

Due to the absence of a formal government, electricity sector reforms have been put aside.

We decided to revise our economic growth forecast for 2021 from -3.6% to -5.7%.

We adjusted our inflation projection from 79.7% to 106.0%.

LEBAN 7 03/20/28 Price

LEBAN 7 1/4 03/23/37 Price

Egypt

July 07, 2021

Flash Note: The Water Dispute

The rainy season, which lasts from June to September, has arrived, reviving disagreements about the filling plan for the Ethiopian Mega Dam (GERD).

Egypt’s irrigation minister said that they had received official information that Ethiopia is filling the reservoir behind the GERD, making it the second straight year this happens.

The Egyptian foreign minister recently discussed the issue with his Chinese counterpart, in what seems an attempt to involve China in the issue.

EGYPT 6.588 02/21/28 Price

EGYPT 7.903 02/21/48 Price

Ukraine

July 07, 2021

Country Report: Two Steps Forward and One Step Back

Ukraine took two important steps towards renewing the IMF deal, as the Rada passed the “anti-oligarch” and banking laws.

Nevertheless, the reformist drive was overshadowed by the wave of resignations from key NBU authorities.

The directors of the licensing department alleged that decision-making in the NBU is drifting towards centralization.

The NBU is deviating from its own standards, which could put the country in a dire position as IMF financing will likely remain frozen.

HOLD: Renewed doubts over NBU’s independence are sure to have played a role in the performance of UKRAIN bonds. While September’s payment is secure, such doubts risk new...

UKRAIN 8.994 02/01/24 Price

UKRAIN 9 3/4 11/01/28 Price

Nigeria

July 06, 2021

Country Report: Living to Pay the Bills

The fiscal position of the country kept worsening between Jan-May 2021.

Total revenue collection until May 2021 totaled NGN 2,777 bn (1.5% of GDP), -20.9% less than the budgeted amount.

Oil revenue stood at NGN 872 bn, 49.8% less than the budget forecast, partially as a result of the OPEC+ production agreement and higher-than-expected petrol subsidy expenses.

Total interest payments between January and May represented 97.8% of total revenues collected over the same period.

HOLD: Nigeria’s ability to cover external debt payments seems robust for now, but long-term risks are tilted to the downside and the domestic debt situation is close to becoming a crisis.

NGERIA 6 1/2 11/28/27 Price

NGERIA 7 5/8 11/28/47 Price

Global

July 02, 2021

EMFI Monthly Review – June

June was slightly negative for our EMFI Core Index, which closed 0.7% down for the month.

A few key underperformers, led by Suriname (-9.5%) and El Salvador (-6.6%), drowned down the very subdued gains posted by outperformers like Turkey (+1.8%), Angola (+1.1), and Bolivia (+0.8%).

Over the month, our Macro Team focused on inflation and exchange rates, as we updated our macro views on each country.

Our Strategy Team covered the restructuring proposal in Suriname and a rare Maduro interview in Venezuela. We also took a closer look into the menu of carry trades available i...

Global

Venezuela

July 01, 2021

Strategy Viewpoint: On the Way to Elections

Over the past few days, we’ve seen two significant new concessions aimed at facilitating the participation of opposition parties in the upcoming November 21 elections.

On Monday, Maduro announced the elimination of “regional protectors,” which oversee the local and regional governments in opposition-controlled states and municipalities.

Then the recently designated CNE board lifted the ban on the MUD political coalition party used by the opposition to group their candidates under a single umbrella for elections.

These developments add to a June 25 joint statement by the US, EU, and Canada, which calls for electoral conditions for the upcoming elections....

VENZ 9 1/4 09/15/27 Price

VENZ 7 03/31/38 Price

Global

July 01, 2021

Country Report: Let's Get Ready to Rumble

All forecasters expect a hurricane season above normal.

NOAA estimate that there will be 13 to 20 named storms, of which 6 to 10 could become hurricanes, including 3 to 5 major hurricanes.

We generally believe that the tourism outlook is positive, as the current levels of tourist arrivals are much higher than those observed in 3Q20.

Under high uncertainty, we maintain our growth forecasts and believe that these could be adjusted upward given the higher-than-expected tourism recovery.

The economic impact of natural disasters adds a new wrinkle to the assessment of BAHAMA, BARBAD, and JAMAN bonds. Of those three, however, JAMAN's yields do not reward investors fo...

BAHAMA 6 11/21/28 Price

Pakistan

June 30, 2021

Country Report: An Oasis of (Banking) Stability

Pakistan’s banking sector looks robust enough to withstand balance sheet shocks.

Both capital to total assets and Tier 1 capital ratios fell slightly in recent months thanks to the rapid economic recovery and the increase of the banking system’s assets.

Pakistani banks have the lowest return on assets (ROA) among our sample.

Although Pakistani Banks seem to have very liquid balance sheets, the deterioration in asset quality and the relatively small size of the banking system (just 54% of GDP) limits domestic bank financing.

SELL: Short-term upsides from positive fiscal news and upcoming financing should fade quickly unless structural change in fundament...

PKSTAN 5 5/8 12/05/22 Price

PKSTAN 6 7/8 12/05/27 Price

Turkey

June 29, 2021

Country Report: The House of Cards Quivers

In the latest IMF’s Article IV review for Turkey the stressed over the current low levels of the gross reserves, which increases the country’s vulnerabilities to external shocks.

Turkey only complies with the three-month imports coverage rule, falling short on all other traditional metrics for reserve adequacy.

Reserves amount to only 60.8% of the short-term debt stock and 39.8% of its external financing needs.

Likewise, reserves as a percentage of the IMF’s ARA metric stand at 74.7%, close to 2018 levels, when the country went through a currency crisis.

TURKEY 6 1/8 10/24/28 Price

TURKEY 5 3/4 05/11/47 Price

Zambia

June 28, 2021

Country Report: The Shine of Copper Lights the Way

International copper prices have soared in 2021, averaging 9,701 USD/ton in June, a 24.6% increase since the beginning of the year.

The volume of Zambian copper exports also increased, to 386.9 thousand mt sold between January and May 2021, a 6.7% increase against 2020.

The boost in copper revenues has had a positive impact on economic activity, commercial balance and government fiscal balance.

The primary fiscal balance between January and April stood at 0.4% of GDP, and the overall balance closed at -1.1% of GDP.

Bonds have remained mostly unchanged, as holders wait for the results of the August general elections. Until we have more clarity on the pol...

ZAMBIN 8.97 07/30/27 Price

ZAMBIN 8 1/2 04/14/24 Price

El Salvador

June 25, 2021

Country Report: The Bukele Assembly

In less than two months, the new assembly has approved and authorized fifteen loans totaling USD 1,981 mn

The Assembly also approved the issuance of debt securities and loan agreements for a total of USD 1,313.9 million to cover the budget deficit.

We calculate that the primary deficit would be at -3.0% and the overall balance at -6.3%.

With the new financing, the financing gap appears to be covered but the public debt would increase to USD 24.3 bn (or 93.4% of GDP) in 2021.

ELSALV 8 5/8 02/28/29 Price

ELSALV 7 5/8 02/01/41 Price

Argentina

June 24, 2021

Country Report: The Never-Ending Fight

The Province of Buenos Aires (PBA) updated its offer to creditors.

Creditors replied with two new offers, but the province didn't accept and refused to make further concessions.

ARGENT 0 1/8 07/09/30 Price

Angola

June 23, 2021

Country Report: An Inconvenient Truth

Angola has asked for an extension under the G20 DSSI to suspend its bilateral debt service from July 1 to December 31.

The government is confident that there is no need for negotiations to restructure debt owed to other creditors.

This is despite financing needs estimated at 13.4% of the GDP and a debt-to-GDP ratio of 123%.

In the short term, Angola will rely on domestic financing and the boom in oil prices to buy some time while economic reforms slowly progress.

Nevertheless, the country faces important threats in the near future, such as the natural decline in oil fields and the lack of a plan to secure its payment ability.

SELL: Improved liquidity due to e...

ANGOL 8 1/4 05/09/28 Price

ANGOL 9 3/8 05/08/48 Price

Sri Lanka

June 23, 2021

Country Report: Too Soon to Celebrate

COVID-19 infections have decreased in the past couple of weeks, with 2,236 new cases (7-day average) on June 22, 29% below May’s peak.

The outbreak may not be completely under control due to the recent detection of the “highly transmissible Delta strain of COVID-19”.

Sri Lanka’s cumulative COVID-19 deaths have exceeded that of regional peers such as Bangladesh.

We expect a GDP slowdown in Q2 as the government imposed a heavy lockdown from late May until June.

Although vaccination began to speed up in mid-June, only 4% of Sri Lanka’s population was fully vaccinated on June 20.

The lifting of the prohibition on the purchase of Euro...

SRILAN 5 7/8 07/25/22 Price

SRILAN 6 3/4 04/18/28 Price

Bolivia

June 21, 2021

Country Report: Curb your Enthusiasm

According to the International Monetary Fund, the Bolivian economy shrank by 8.8% in 2020.

Finance minister Marcelo Montenegro, announced a 5.6% YoY expansion during the first 4 months of 2021.

Natural gas production totaled 4,329 MCM during Q1-2021, a 4.8% YoY increase.

The economic recovery is in jeopardy because of the third wave of COVID-19, which has forced authorities to reinstate mobility restrictions in several departments.

HOLD: IMF expects higher commodity prices to boost the recovery while authorities need to take care of the mid-to-long term fiscal and external sustaintability.

BOLIVI 4 1/2 03/20/28 Price

Suriname

June 21, 2021

Strategy Viewpoint: The Black Elephant in the Room

Suriname presented an initial restructuring offer, which includes extremely harsh principal haircuts that are wildly inconsistent with bond prices that remain above 60 cents on the dollar.

The proposal involves a 70% principal haircut, a front-loaded step-up coupon structure, and a 5-year amortization ending in 2029. At an 11% exit yield, this implies a 21.3% recovery value.

We find that the proposal results in a very low-duration bond that would make recovery values very insensitive to future spread compression.

Furthermore, official economic projections ignore the potentially transformative impact of oil discoveries. We believe that the size of the economy could more t...

SURINM 9 1/4 10/26/26 Price

Suriname

June 18, 2021

Country Report: Let It Float, Let It Float

The Central Bank abandoned the crawling peg and adopted a floating scheme.

The gap between the new official rate and the parallel market was closed.

The Central Bank also introduced a monetary targeting policy. We believe that this policy is adequate to control inflation.

The growing social discontent and the search for quick results could weaken the government's commitment to the program.

SELL: In our view, the risk/reward balance is unattractive at current prices, which are discounting an extremely positive outcome as the base-case.

SURINM 9 1/4 10/26/26 Price

Venezuela

June 18, 2021

Strategy Viewpoint: Quick Take on Bloomberg’s Interviews

Today, Bloomberg released a rare interview with Venezuela’s de facto President Nicolás Maduro, alongside separate conversations with opposition leaders Juan Guaidó and Henrique Capriles. We provide a summary of each interviewee’s perspective and brief commentary.

Maduro paints his administration as a victim of US policy while reasserting his goodwill towards investors and creditors. Unsurprisingly, he seeks to rally lobbying efforts by creditors and oil companies to end the sanctions regime.

Juan Guaidó comes off as not being in control, both regarding US sanctions and the potential consequences of the International Criminal Court’s inves...

VENZ 9 1/4 09/15/27 Price

VENZ 7 03/31/38 Price