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Among Middle Eastern countries, only Syria, Sudan and Yemen have a lower minimum wage than Lebanon.
Despite the deepening economic crisis, we consider that Lebanon has relatively low risks of civil war.
We believe that the status quo will continue until the general elections are held. Therefore, economic reforms will take a backseat pending the elections.
We do not believe that Washington's goal of reviving the nuclear deal is in line with promoting sanctions on the Lebanese government, Iran's close ally.
HOLD: Slow progress in the political sphere means that there is no catalyst for short-term upsides to materialize, yet we see a strong positive asymmetry ...
One of the largest economies from the Sub-Saharan Africa region is transitioning an unhealthy fiscal path.
While the pledge to cut the fiscal deficit is positive, historic performance does not make the case for a promising future.
While domestic debt remains, by far, the main financing source, Eurobonds have grown more important since 2018. However, Ghana’s unsustainable debt dynamics could risk tighter issuance windows in the short and medium term.
We maintain our HOLD rating, as yields are attractive enough to make it worthwhile the wait for better fiscal results, all while the forecasts of elevated deficit and gross financing needs are worrisome.
The BCRA started financing the Treasury again in March through transitory overdrafts, after showing some restraint in Q4-2020.
Gross reserves have barely increased even though the BCRA has bought USD 3,028 mn in the FX market in the last four months.
The evolution of reserves is contingent on the debt negotiations with the Paris Club and the IMF.
Argentina will likely receive USD 4,355 mn at the end of August in a new SDR allocation, which will allow it to replenish international reserves and buy time for an agreement with the IMF and Paris Club.
BUY: The bond´s step-up coupon structure and the low debt service over the next 2 years should provide security in...
There have been concerns in the U.S. Congress about Biden’s approach to Al-Sisi’s administration.
Biden approved a missile sale to Egypt, but it signed a petition with other Western countries urging an end to human rights violations.
Truth is that, despite the accusations, Egypt is a strategic ally, and the U.S. has provided them with more than USD 50 bn in assistance since 1978.
We do not expect a major pushback against Egypt’s rights abuses, as China’s presence in the country grows.
BUY: Egypt provides an attractive risk/reward combination, remaining an interesting choice for those who are willing to take the exposure in uncertain times. C...
Guillermo Lasso won Ecuador’s presidential runoff, with the pro-market businessman receiving 52.4% of the valid votes compared to 47.6% for far-left economist Andrés Arauz.
Lasso was widely considered an underdog, but a late surge in the polls pushed him over the top. This was his third presidential campaign.
Blank and null votes accounted for 16.3% of the total (with 98.8% of the votes counted), after supporters of the indigenous movement promoted this option.
Lasso faces big challenges ahead. He will inherit a weakened economy and the need to form alliances to pass laws in the divided National Assembly.
Our benchmark bond ECUA 0.5% 2030 is up 14.6 po...
The IMF expects Argentina to grow 5.8% this year, according to the latest WEO.
Vice-president Cristina Fernández said that a new default is not an option, even if she also added that repayment to the IMF under current terms is not possible.
The country is in the midst of a second COVID-19 wave.
GDP dropped by 4% in 2020, in line with EMFI’s forecast (-4.2%).
The economic recovery in 2021 could be undermined by the second wave of COVID-19 infections and the possible escalation of the conflict with Russia.
An escalation of the conflict with Russia would dramatically change the outlook and could bring an economic crisis such as the 2014-15 collapse.
Not reaching an agreement with the IMF before September will mean higher external debt costs, pressures on international reserves, depreciation of the FX rate, and lower inflows of foreign investments.
The delay in the talks with the IMF keeps the bonds in suspense, while a new geopolitical escalation in th...
The Salvadoran economy contracted 7.9% in 2020
The government’s countercyclical policies increased the fiscal deficit from 2.9% of GDP in 2019 to 10.4% in 2020
Along with Panama and Belize, El Salvador had the worst fiscal performance among Central American countries
We believe the government's approach to the IMF is constructive and see the early start of negotiations as a positive development
HOLD: Although an upcoming agreement could improve liquidity conditions and lower pressure on the domestic market, the sustainability of public finances will remain in question if the agreement does not lead to significant fiscal reforms
March was the worst month for our EMFI Core Index since September. Our index fell 2.2%, compounding with previous losses for a total 6.5% decline year-to-date.
This month the losses were broad-based with 12 names going down against 4 going up and 1 holding flat. Sri Lanka (+8.6%) and Venezuela (+2.4%) were the month’s outperformers, while Lebanon (-10.3%), Turkey (-7.8%), and Argentina (-6.3%) saw the largest losses.
The 10-year US Treasury yield surpassed 1.70% during the month, and the debate of inflation vs growth keeps raging, with big implications for emerging and frontier markets going forward.
Our Macro team focused on politics and external ba...
The kwacha’s exchange rate has stabilized around 21.6 USD/ZMW, after having lost more than 1/3 of its value vs the dollar since the pandemic started.
Foreign exchange reserves stood at USD 1,177 mn in February, a -14% YoY variation.
The current account closed 2020 with a positive balance of USD 2,320 mn (12% of GDP) an increase of USD 2,175 mn from 2019.
The financial account recorded a capital outflow of USD 2,653 mn, mainly in deposits from non-financial corporations and households.
Bonds remain flat, while IMF talks continue but expectations of a pre-election deal ease
After an interest rate hike of 200 bps, the central bank’s governor, Naci Ağbal, was dismissed by president Erdoğan.
The lira depreciated by 13.3% in the last two weeks of March, as the perception is that economic heterodoxy is back in the game.
Şahap Kavcioğlu, the new central bank governor, tried to calm the nerves by declaring that tight monetary policy will continue as he is not planning to cut the interest rate.
Nevertheless, we think that pressure on the exchange rate will remain as market sentiment deteriorates.
Despite recent events, we maintain our HOLD position at the short end of the curve but ratify the skepticism for the long section.
PTI ruling party won 13 more seats in the Senate but lost the Islamabad general seat to the opposition.
The defeat suggested that Khan did not have the support of his coalition and some lawmakers turned their back on his candidate.
The government will still face difficulties to pass laws as it holds just 48% of seats vs. the opposition’s 52%.
A brief respite came after PTI’s candidate Sadiq Sajrani was reelected as the Senate chairman.
SELL: A type of honeymoon could benefit the bonds for a few months, but Pakistan’s fundamentals are unlikely to change and the long-term view remains grim.
We believe it is more important to look at the pace of adjustment in real yields, rather than their level, to see what kind of effect these have over EM credits.
While being mostly resilient so far, we expect the EM universe to be affected by the volatility in the US rates, given our expectation of inflation dictating the terms for the rest of 2021.
Until now, higher volatility in US rates has not translated into higher volatility of yields or z-spreads in EMFI benchmark bonds, according to our assessment.
Our long-term expectations are much better than those for the remainder of the year. In 2022 and beyond, higher yields could reap benefits for those that weather 2021...
With Andrés Arauz’s favorite for the April 11 runoff, we take a deep dive into the main economic policy risks associated with a potential return of correísmo.
Arauz proposes boosting aggregate demand with central bank financing of government spending. Contrary to popular misconception, dollarization does not completely prevent this sort of operation.
Nonetheless, a disorderly expansion of the central bank’s balance sheet could quickly compromise trust in dollarization and the stability of the domestic financial system.
To counterbalance expansion of central bank domestic liabilities, Arauz proposes strengthening its external assets with a combin...
Kristalina Georgieva will present a formal proposal for the new SDR allocation to the IMF Executive Board in June.
The global allocation would amount to USD 650 bn, while the amount received by each country would be determined by its quota.
Angola has the fifth largest quota in Africa (0.16%). It would imply an allocation of USD 1.04 bn, equivalent to 1.5% of the GDP or 12.4% of liquid FX reserves.
Although any amount is welcome, we think this would only bring temporary relief given that long-term economic challenges remain.
SELL: The slowdown in the rally of oil prices is not good news, and (while positive) not even the possible issuance of new SDRs by the IMF wil...
The current account deficit decreased by USD 1,171 mn in 2020, ending the year at USD -176 mn.
Total goods exports closed at USD 6,936 mn, increasing 21,4% YoY, while imports stood at USD 6,486 mn, -28.4% YoY.
The financial account recorded an outflow of USD 563 mn in 2020, while errors and omissions were USD -1,026 mn.
Reserve assets decreased USD 1,193 mn, closing at USD 5,275 mn in 2020, their lowest level since 2007.
HOLD: No major short-term payments keep investors safe for now, but the drainage of FX reserves continues, and not even the possible corresponding allocation of new SDRs would change the situation.
The government applied its traditional recipe to stabilize the FX rate, severe import restrictions on non-essential goods.
The growth of the broad money has reached record highs, not even seen in the 2011/12 and 2015 balance of payment crisis.
There is space for further depreciation of the FX rate due to the expansionary monetary policy and the recovery of imports.
Even considering China’s currency swap line, 2021 external debt service will represent 111% of reserves.
SELL: We remain skeptical of Sri Lanka’s capacity to continue muddling-through after the July maturity and reaffirm our SELL recommendation
A key reform to the Monetary Code that is necessary to unlock the IMF’s second disbursement has been rejected two times in the early stages of the legislative discussion.
This is somehow surprising, given that the reform shouldn’t be too controversial and assembly members in charge of pre-approving it belong to parties that support the IMF program.
The law aims to strengthen central bank independence, prohibit central bank financing of the government, and improve confidence in the dollarization.
Even if the law is cleared for discussion in the plenary, it is still unlikely that it would be passed before the deadline set by the IMF's second review.
At th...
Ghana ended up 2020 with a fiscal deficit of 10.6% of GDP.
On the revenue side, the COVID-19's crisis affected negatively the result, closing at 14.2% of GDP (-1.1 P.P yoy), while expenditure expanded to 25.4% of GDP (+5.4 P.P yoy) to palliate the negative effects on the economy.
Total public debt is estimated at USD 50.5 bn in 2020, 72.8% of GDP.
Government authorities projected only a slight improvement in the fiscal balance for 2021, with a gap of -8.7% of GDP.
HOLD: Higher prices for commodities and an uptick in the GDP growth rate counterweigh the fiscal deficit and public debt, which are running wild right now. Meanwhile, the upcoming USD 5 bn Eurob...
The economic recovery program will inject USD 410 mn (2.9% of GDP) into the economy.
We project that the primary surplus will be 5.3%, 0.8 p.p. lower than the government’s forecast.
We expect a slow economic growth recovery (4.4% vs. 5.2% expected by the government) due to the lack of major fiscal stimulus.
We estimate that the debt will decrease from 112.9% to 108.5% of GDP in the FY2021/2022
SELL: In our view, Jamaica is trading significantly rich, and it would not come as a surprise to us if the curve gradually shifted upwards.
The large spread between the parallel and the official FX rates eroded the trade surplus in 2020.
But it appears that Argentina lucked out, as commodity prices have shot up in Q1-2021.
The export recovery has given the Central Bank space to purchase dollars in the official market and replenish international reserves.
Looks like Fernández’ administration just found its ticket to arrive at the midterm legislative elections without a major FX crisis.
BUY: There are tangible catalysts (IMF, mid-terms) as 2021 progresses, and even though the market continues to be pessimistic on its expectations, we like the asymmetry implicit in current prices
Foreign holdings of local debt have recovered from their collapse in early 2020, climbing to USD 28.5 bn in February from USD 10.4 bn in May last year.
The main reason behind this recovery is the high real interest rate that Egypt offers, currently around 4%.
The next Monetary Policy Committee meeting is scheduled for March 18, and we believe the rate will remain unchanged due to the recent evolution of inflation.
Another chapter of overvaluation remains as a latent threat given that most of the competitive gains from the 2016 devaluation have already vanished.
BUY: The carry and roll down profile of the back end of the curve has improved significantly and ove...
There is a growing rift within the opposition coalition about the strategy going forward. An increasing number of politicians want to participate in regional elections, but Guaidó himself still refuses to do so.
Regardless of the participation, we see little chance of a regime change over the next 4 years.
We do think that there will be a relaxation of economic sanctions in the mid-term, but not without some concessions from Maduro.
In our view, any proposal to restructure Venezuelan debt in the short-term is fantasy, but we do think the US could lift the restriction on the trading of bonds in the secondary market.
We highlight three key elements of uncertai...
Nigeria came out of the pandemic-induced recession in Q4-2020, as the quarterly GDP grew 0.01% YoY.
The result was driven by positive outcomes in activities like crop production, telecom, real state, and food and beverage that grew 3.7%, 17.6%, 2.8%, and 2.1% YoY, respectively.
In aggregated annual terms the economy contracted -1.8% against 2019.
The inflation rate was 15.8% in 2020, and in February 2021 it accelerated to 17.3%, the highest rate since March 2017.
HOLD: GDP results and higher oil prices are positives for the credit, but the upsides will likely remain limited until we see evidence that fiscal revenues are also improving.
We investigate present issuances to gauge whether rising credit spreads could feed rollover risk for sovereigns facing significant short-term maturities.
Issuance volume falls considerably above an 8% yield and cease to exist altogether above 10%
The names that issue between 8% and 9% are a mixed bunch, but are usually muddling through solvency and fiscal problems and poor governance.
The new crawling peg regime established a lower band of 14,290 SRD/USD and an upper band of 16,300 SRD/USD.
The government also established anti-market measures such as mandatory repatriations and foreign exchange surrender requirements for exporters.
We calculate that the net international reserves reach USD 129 mn, enough to cover only around 3 weeks of imports.
The recently announced measures are a momentary solution that does not really tackle the underlying fiscal issues.
SELL: The news about the government measures is not market-friendly, but Suriname's debt remained unchanged in recent weeks due to the low volume of operations.
Rising agricultural commodity prices and the possible expected issuance of SDR has given the Fernandez administration a lucky break.
FX Inflows have allowed the Central Bank to slow down the USDARS crawling peg rate.
We look at how a stronger currency can improve fiscal deficit figures by lowering servicing costs of USD-linked securities.
On December 7, incumbent President Nana Akufo-Addo from the New Patriotic Party, was re-elected in the first round with 51.3% of the votes.
The election had a high turnout, with 78.9% of the registered citizen casting their votes.
For the first time an elected president will face a hung parliament, as the New Patriotic Party and the National Democratic Congress won 137 seats each, with the remaining one going to an independent candidate.
Opposition Candidate John Mahama rejected the result and will challenge them at the Supreme Court.
Despite fears of high bond debt, our recommendation is HOLD Ghana's debt.
Recently, a new Covid-19 variant was detected in the United Kingdom (UK)
Before the pandemic, the UK was the largest source of tourists to Barbados.
Although there is still much uncertainty about the new variant of covid-19, we do not believe there will be a significant impact on the Barbadian economy.
We take a comprehensive look at political risk indicators in a group of Emerging Market countries, trying to identify potential sources of conflict.
We analyze the electoral scenarios in the four Latin American nations that will have electoral processes during the end of 2020 and all of 2021.
We review the scenarios in the parliamentarians of Argentina and El Salvador, we comment on the electoral process that will take place in Venezuela, and we review the perspectives of the presidential elections in Ecuador.
We evaluated the World Bank’s governance indicators for our sample countries in 2019 and share our view of these indicators for 2020.
