Global December 24, 2020

Strategy Viewpoint : In the Crosshair(cut)

In the 209 sovereign restructurings since 1978, the average haircut stands at 40.5%, but this result may be deceiving.

Market or private restructurings represent 79% of the cases, yet their average haircut stands at 30.3%.

Amongst the market/private restructurings, agricultural countries represent the largest share and exhibit the highest haircuts.

The average haircut in market/private restructurings has been increasing consistently and stands at almost 49% between 2010-2019.

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- Global

Argentina June 19, 2024

Flash Note : Save in May, Because June is Tough

The treasury posted its fifth overall fiscal surplus in May, accumulating 0.5% of the GDP in the first 5 months and a primary surplus of 1.3% of GDP.

For the first time in the year, government revenues grew in real terms (+5.8% YoY) while primary expenditures kept falling in real terms (-28.7% YoY).

The huge increase in revenues is driven by income taxes (+93% in real terms), while taxes on foreign, including the distortive PAIS tax, also helped.

As we have said before, June will be challenging due to seasonality, so we wouldn’t be alarmed if the government posts a reasonable overall deficit.

Fiscal performance keeps outperforming our expectations; while we still think an overall surplus for the full year is difficult, we see it as increasingly feasible.

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- ARGENT 3.625 07/09/35 Price

Lebanon June 19, 2024

Country Report : Be Our Guest

Tourist arrivals plunged after October 2023, due to the impact of the war between Hamas and Israel, but the pace of decline has been decelerating in the last few months.

The WTTC estimates lower activity and revenue in the tourist sector this year, as spending by international visitors is expected to decrease from USD 8.1 bn to USD 6.5 bn.

The country-origins that typically account for the highest spending–the UAE, KSA, and Kuwait– are unlikely to return yet, as negative travel advisories and bans remain in place.

Arrival numbers are expected to be backstopped by visiting Lebanese expats but these don’t tend to be a source of high spending in the hotel and other travel-related industries.

BUY: We expect the name to continue trading range-bound in the short term due to the lack of positive catalysts but see extremely low prices as an interesting risk/reward proposition for the mid-term. 

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- LEBAN 7 03/20/28 Price- LEBAN 7 1/4 03/23/37 Price

Sri Lanka June 19, 2024

Flash Note : A Tax System Revamp under the IMF’s Wing

The IMF modified revenue consolidation targets in its latest EFF review. New taxes on housing, digital services, and exports are expected to be implemented to increase tax collections.

Sri Lanka’s economy grew by 5.3% YoY in Q1-2024, inflation continued to decelerate, and international reserves are looking healthier.

The program’s main challenges remain a transparent implementation and the upcoming general elections, which might result in policy reversal.

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- SRILAN 6 3/4 04/18/28 Price

Argentina June 19, 2024

Strategy Viewpoint : Where is Milei heading?

Bonds recently rallied on positive headlines, including the approval of Milei’s reform and fiscal package, the approval of the IMF review, and the rollover of China’s USD 5 bn swap.  

Argentina looks primed to achieve 5 consecutive monthly fiscal surpluses, a milestone that Argentina hasn’t managed since Nestor Kirchner's presidency.  

Economic activity appears to have already hit bottom, disinflation continues, the net international reserve position is healthier and Milei’s approval ratings remain at acceptable levels. 

Politics is Milei’s weak point, as the approval of his first 2 laws took 6 months; mid-term elections will be crucial to shore up support in the legislature. 

BUY: Our average probability-weighted fair value for the bonds is in the 49-65c range, 5-10 pts above the current 41-58c range. 

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- ARGENT 0.75 07/09/30 Price

Ukraine June 17, 2024

Flash Note : Our Initial Take on the Restructuring Proposals

On June 17, the Ukrainian government released a statement containing important information on ongoing discussions with the bondholder committee.  

We estimate a range of recovery of 21.4-37.9% (depending on the realization of contingent value) for the government’s first proposal under a 14% exit yield. 

The bondholder committee presented a first counterproposal, which we value at 51.5-67.4%, and a second offer, which we value at 48.9-65.9%. 

Eurobond prices fell 1.7 pts on average in the last week and are trading at 28.4c on average, 4 pts below our estimate for the recovery under the IMF’s baseline scenario. 

The government’s proposal sets a floor for bonds at current market prices, which tilts the risk/reward to the upside and motivates us to switch to a BUY recommendation. 

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- UKRAIN 9 3/4 11/01/28 Price

Bolivia June 14, 2024

Country Report : Boiling Point

Bolivia’s stability remains threatened, not only by a difficult macroeconomic situation but also by an unstable political and social outlook.

The political push and pull, Morales and Arce appear to be in a technical tie. In the end, we foresee an escalation of social unrest if Morales fails to run for election.

An acute deterioration of living standards, especially in terms of fuel shortages, could also be a trigger for widespread protests in the country.

In the political battle between Morales and Arce, the forces seem to be tilted slightly in favor of the latter but Evo Morales is likely to raise the temperature of a conflict as elections approaches.

HOLD: We anticipate minimal risk of an imminent default and modest downside potential at present valuations. However, there is also a dearth of catalysts that could drive upward movement in the near term. 

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- BOLIVI 4 1/2 03/20/28 Price

Barbados June 14, 2024

Flash Note : Going back to 2019 (in a Good Way)

The current account notably improved in the first quarter to a surplus of USD 12.7 mn (from a USD 75.1 mn deficit in Q1 2023), marking the first such surplus since Q1 2020.

The main driver was a 14.8% YoY rise in tourist arrivals to 229k (even above the Q1 2019 pre-COVID levels).

On the other hand, imports decreased 1.6% compared to Q1 2023, which is not negligible, especially considering that  WTI prices rose 1.9% in same period.

Positive developments in external accounts (particularly in tourism) prompt us to revise our current account forecast from a 7.5% deficit to a 5.9% deficit for 2024.

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- BARBAD 6 1/2 10/01/29 Price

Trinidad and Tobago June 11, 2024

Country Report : Green is the New Black

Although Trinidad and Tobago's share of global carbon emissions has declined over the years, the country remains one of the highest in the world in terms of CO2 emissions per capita.

The Carbon Border Adjustment Mechanism started a transitional phase in the EU in October 2023. By 2026, it will add a fee on imported products depending on climate pollution during the production process.

The CBAM will particularly affect T&T’s fertilizers and ammonia exports, where the EU is the main buyer according to TradeMap.

We believe this is the tip of the iceberg, as such policies are expected to be replicated in other countries.

HOLD: The country presents economic indicators ranging from neutral to positive, with a low risk of default, but the yield on offer is not particularly attractive.  

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- TRITOB 4 1/2 08/04/26 Price

Ecuador June 11, 2024

Country Report : A Shot in the Arm or Just a Band-Aid?

The USD 4 bn IMF loan is intended to help the country meet its financial obligations in the near term and potentially help it regain access to international capital markets by 2025.

Important measures such as tax increases and the focalization of fuel subsidies are expected for the next two years, but surprisingly no reform targets an increase in investment or a cut in other current expenditures besides fuel subsidies.

Overall, we think the IMF’s targets are more realistic this time around than in the two previous programs.

In our view, the main implementation risks are derived from a potential change of economic policy direction if Noboa loses the 2025 elections.

BUY: We regard the IMF program as overall positive for the credit given that it will help Noboa consolidate his reelection bid and economic policy continuity.

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- ECUA 0 1/2 07/31/30 Price

Guyana June 11, 2024

Flash Note : Current Prosperity but Future Uncertainties

The National Resources Fund (NRF) reached USD 2,634 mn in April (equivalent to 15.8% of GDP).

YTD performance signals that state oil revenues could surpass our forecast of USD 2.6 bn for the year (which was already optimistic compared to the official projection of USD 2.46 bn).

The modifications to NRF law show institutional weakness and a lack of focus in medium and long-term planning, which is, in our view, one of the main risks for the country's long term economic outlook.

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- Guyana

Bahamas June 07, 2024

Flash Note : Overcoming Fiscal Challenges

The government of Bahamas adjusted its forecast for the overall FY 2023/24 deficit from 0.9% to 1.0-1.5% of GDP.

The debt-to-GDP ratio fell to 79.9% by the end of March 2024, from 81.2% in March 2023.

For the FY 2024/25, the government expects to continue narrowing the deficit, reaching 0.5% of GDP.

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- BAHAMA 6 11/21/28 Price

El Salvador June 05, 2024

Country Report : The “B” Rating Condition

In order to determine if the “B” rating is achievable in the short term, we compared El Salvador’s macroeconomic and fiscal position to that of other countries with a “B” rating.

Institutional strength does not seem to be an unsurmountable obstacle for El Salvador to reach a “B” rating, as all four members of our comparable group show poor results in transparency and governance.

However, El Salvador lags significantly in terms of growth prospects, public finances, and external strength.

We believe that El Salvador is unlikely to achieve the necessary upgrades to meet the condition linked to the interest-only instrument over the near term.

Nonetheless, we positively evaluate recent Bukele's statement about the government's intention to improve the country's macroeconomic position.

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- ELSALV 8 5/8 02/28/29 Price- ELSALV 7 5/8 02/01/41 Price

Egypt June 05, 2024

Country Report : Watching the Horizon

Egypt growth rates have slowed down following the consequences of the war between Ukraine and Russia and, more lately, Israel and Hamas.

We examined capital and labor prospects, along with total factor productivity performance, to gain a better perspective on the country’s long-term outlook.

Egypt enjoys good infrastructure and services overall but is currently facing electricity shortages.

The large and growing population is one of the most positive factors for Egypt’s prospects, with a rising working age population and and higher levels of education.

We expect that these structural challenges will be overcome, especially if the IMF keeps holding Egypt’s hand.

HOLD: We see little room for upsides at the current spreads due to a massive interest bill that turns a strong primary surplus into a large overall deficit.

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- EGYPT 6.588 02/21/28 Price- EGYPT 7.903 02/21/48 Price

Global June 05, 2024

EMFI Monthly Review – May

Our EMFI Core Index gained 0.4% in May, with 7 names rising, 5 losing ground and 4 holding steady. 

LEBAN (+8.7%), ZAMBIN (+5.8%), and GHANA (+4.4%) were the month’s top performers, while ECUA (-5.1%), ARGENT (-2.7%) and VENZ (-2.2%) underperformed. 

Our Macro Team reviewed developments in Suriname’s oil industry, progress in Argentina’s fiscal consolidation, and the crucial importance of Chinese debt for Angola.  

Our Strategy Team updated its assessment of Ghana's restructuring proposal and reviewed developments on the CITGO auction. 

We also released a Special Report on Ukraine’s debt restructuring, in which we deconstructed IMF DSA data to simulate the trajectory of debt for different hypothetical restructuring parameters. 

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Pakistan June 04, 2024

Country Report : A Fiscal Balance Quest

Pakistan completed a short-term IMF program in April but is seeking a new one due to multiple fiscal risks and persistent two-digit inflation.

The upcoming FY 2024-25 budget is expected to be focused on IMF demands like raising tax revenue and cutting spending, but we believe it is easier said than done.

We forecast a budget deficit of 6.4% and 5.8% of GDP for FY 2024-25 and FY 2025-26, respectively (from 6.8% in FY 2023-2024).

Some key measures to raise revenues include broadening the tax base to undertaxed sectors, eliminating tax exemptions, and the privatization of state companies.

HOLD: With the country’s large budget deficit we do not see much room for further spread compression.

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- PKSTAN 6 7/8 12/05/27 Price

Argentina June 04, 2024

Strategy Viewpoint : Should we Bet on Kicillof?

Both sovereign and PBA Eurobonds were restructured in 2020/21 under similar terms, including step-up coupons and sinkable amortizations.  

A potential game-changer has been developing in the last month, as Governor Kicillof has been showing himself in meetings with other governors from different parties, which hints at a possible presidential bid for 2027. 

Although Kicillof’s political ambitions could motivate him to avoid a default, the PBA’s compromised capacity to pay makes us prefer the sovereign. Additionally, the national government’s market-friendly approach would facilitate a liability management operation. 

The relative attractiveness of the BUENOS instrument increases in a worst-case scenario of an aggressive restructuring, in which the lower cash price provides less space to the downside. 

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- ARGENT 0.75 07/09/30 Price

Bolivia June 04, 2024

Flash Note : A Breeding Ground for Unrest

Fuel and FX shortages are having an impact on the population's standard of living and have led to protest by truckers seeking a return to the pre-crisis status quo.

However, we expect these to remain focalized and not to massify into widespread national protests.

We see more risk for unrest if the fuel shortage worsens in coming weeks or if Evo Morales candidacy for the 2025 presidential election is blocked.

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- BOLIVI 4 1/2 03/20/28 Price- BOLIVI 4 1/2 03/20/28 Price

Nigeria May 30, 2024

Country Report : Not A Happy Anniversary

After a year of Tinubu’s administration, citizens face a significant hike in prices of essential commodities and discontent has become loud.

Inflation hit the highest print in almost 30 years last April (33.7%), driven by food prices (40.7%) that represent 51% of the consumption basket.

The main worker's unions are currently negotiating an increase in salaries with the federal government as they keep posing the threat of a general strike.

Despite the worsening economic situation, our base scenario is that the government and the unions will reach an agreement without the need for a general strike.

HOLD: We believe that Z-spreads in the 600-bp area are justified given the current difficult economic environment. Additionally, the name could tap the international markets if needed.

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- NGERIA 6 1/2 11/28/27 Price- NGERIA 7 5/8 11/28/47 Price

Venezuela May 30, 2024

Flash Note : The State of Affairs for CITGO

Venezuela is still trying to prevent or stall the sale of PDVH, but Judge Stark remains committed to pushing forward without delays.

The judge dismissed Venezuela’s objections to the Special Master asking potential buyers to consider scenarios for the release of the equity pledge to PDVSA 20 bondholders in connection with the transaction.

In parallel, the PDVSA 20 case is back at the Court of Appeals for the Second Circuit, which is likely to remand to the district court for evaluation of the bond’s validity under Venezuelan law.

Should the judgment be vacated, the claim could be recalculated to account for an additional 3-4 years of interest, potentially raising the award to USD 2.6 bn (153c) from the previous USD 1.9 bn (115c).

In our view, recent developments in the Crystallex case and PDVSA 20 case are positive for the bond.

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- VENZ 9 1/4 09/15/27 Price- VENZ 7 03/31/38 Price

Jamaica May 30, 2024

Flash Note : Hard Work Pays Off

The Jamaican government finished FY2023/24 with a tiny fiscal surplus of USD 7.6 mn, equivalent to 0.0% of our estimated GDP.

Considering this result, we estimate debt to GDP ratio reached 73.7% by the end of FY2023/24.

For FY2024/2025, we forecast an overall balance surplus of 0.2% of GDP and a primary fiscal surplus of 5.8%.

We believe the declining debt trajectory will also continue, reaching 71.3% by the end of this fiscal year in March 2025.

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- JAMAN 6 3/4 04/28/28 Price- JAMAN 7 7/8 07/28/45 Price

Turkey May 28, 2024

Flash Note : Inflation-fighting

President Erdogan, Finance Minister Simsek, and Central Bank Governor Karahan have stressed that the disinflation process will start in the second half of the year.

We have maintained that authorities are doing their homework and have remained focused on the issue, including by maintaining an austere fiscal policy.

Last July, the government introduced tax hikes that pushed monthly inflation to almost 10%. That jump will now produce a base effect that will contribute to disinflation this year.

Nonetheless, we are moderately more pessimistic than authorities as we expect inflation to be 46% by year-end, higher than the 38% forecasted by the government.

All in all, the economic and financial honeymoon continues, supported by the orthodox economic policies.

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- TURKEY 6 1/8 10/24/28 Price- TURKEY 5 3/4 05/11/47 Price

Sri Lanka May 27, 2024

Country Report : Is Exchange Rate Stability Sustainable?

Sri Lanka's inflation, as measured by the Colombo Consumer Price Index (CCPI), accelerated slightly in April to 1.5% (lower-than-expected); the central bank maintained its target of 4-6% for the year.

The Sri Lankan rupee has strengthened significantly in the first months of 2024, driven by the slow recovery of imports, the rebound of tourism, and higher worker remittances.

We estimate the Sri Lankan rupee is currently overvalued by 10% and anticipate it to continue appreciating over the next few months, but expect it to depreciate to USD/LKR 310.8 by year-end on higher FX demand after the 3rd quarter.

We maintain our HOLD recommendation for the name given the uncertainty over the yield on the new bonds if the proposed highly exotic structures are implemented.

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- SRILAN 6 3/4 04/18/28 Price

Ghana May 24, 2024

Country Report : Inflation to Decelerate by the End of the Year

The year-to-date depreciation of the cedi is 35.4%, going from GHS 8.6/USD at the end of December to GHS 13.4/USD in April, pushing inflation to 25.1% last month.

The market expected the BoG to keep easing, however, giveUSDn the recent deterioration of inflation and the exchange rate, there are doubts about the central bank's next steps.

We expect the MPC to keep the policy rate unchanged at 29% before resuming the easing cycle later this year.

We also expect inflation to decelerate to 21.6% by end-2024 from 23.2% in 2023, while the FX rate will close the year at GHS 14.6/USD from GHS 11.6/USD last year.

HOLD:  We think current valuations appropriately reflect the risk/reward balance given the possible terms of the base restructuring and the possibility of VRIs being included.

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- GHANA 7 5/8 05/16/29 Price- GHANA 8.627 06/16/49 Price

Turkey May 23, 2024

Flash Note : Calmer Waters Ahead

One year after Erdogan’s reelection, economic policy has improved significantly under the watch of Finance Minister Mehmet Simsek.

We are seeing gradual fiscal consolidation, as well as positive monetary policy signaling, disinflation, and an improvement in external accounts.

We continue to see Turkey’s risk as primarily political, but this risk is contained given an apparent commitment to the current policy path and the long time until the next election.

With z-spreads at 297 bps for the 10y bond and an attractive current yield of over 8%, we like the risk-reward, especially relative to its peers. We thus switch our recommendation from HOLD to BUY.

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- TURKEY 6 1/8 10/24/28 Price- TURKEY 5 3/4 05/11/47 Price

Costa Rica May 22, 2024

Country Report : Tempers flare

On May 2, during his annual speech, President Chaves announced his intention to call a referendum over several initiatives that "have been blocked by the Legislative Assembly."

Although Chaves' proposed reforms seem positive in fiscal terms, they have previously been rejected by the Assembly due to concerns over transparency and due diligence.

Despite his high popularity, we believe it is unlikely he will achieve the required levels of participation to approve the reforms.

All in all, if the referendum goes ahead and is approved, it will imply a deterioration in the government's transparency and due diligence, but the intensifying confrontations between the Assembly and the executive branch also pose significant downside risks.

SELL: Low yields offer a small spread to treasuries and do not compensate for the risks associated with the credit. 

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- COSTAR 4 3/8 04/30/25 Price- COSTAR 7.158 03/12/45 Price

Lebanon May 21, 2024

Country Report : Going With the (Trade) Flow

We looked into the data from trade partners in our ambition to analyze Lebanon’s economic situation beyond what the scarce official data allows.

We built a high-frequency index for exports and another one for imports, both of which account for a significant percentage of total trade.

All in all, both exports and imports show a negative trend. Exports, in particular, continued declining in January, likely as casualties from the war next door.

As for imports, after some stabilization, their contraction restarted in mid-2023.

Overall, Lebanon’s economy remains depressed, and while there is not much space to continue shrinking, the war is taking its toll on what remains of the country. We reaffirm our estimation of a contraction of 1.3% this year.

BUY: We see prices remaining range-bound in the short term due to the lack of positive catalysts but see extremely low prices as an interesting risk/reward proposition regardless.

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- LEBAN 7 03/20/28 Price- LEBAN 7 1/4 03/23/37 Price

Argentina May 21, 2024

Flash Note : Another Month, Another Surplus

Finance Minister Luis Caputo announced last week that the country achieved another overall fiscal surplus in April, the fourth in a row.

Both government revenues (-6.5% YoY) and primary expenditures (-23.7% YoY) kept falling in real terms, though at a slower pace.

The surplus has been driven by collection from taxes on foreign trade, including the distortive PAIS tax, which raises concerns about the sustainability of the surplus.

We think social spending is likely to rise as a share of GDP in the upcoming months due to inflation indexation, but the government has room to reduce economic subsidies to partially compensate.

May looks like an “easy” month relative to the others in terms of seasonality, so we expect another surplus, but June will be more challenging.

Despite the outstanding results so far, we think the target of an overall balance in Milei’s 1st year remains challenging to meet.

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- MERVAL Price

Ecuador May 20, 2024

Country Report : A Current Account Surplus Surprise

Ecuador registered a trade balance surplus in Q1-2024 thanks to higher oil prices and lower imports since January.

We expect lower imports and resilient exports to help sustain a current account surplus through the year.

Although international reserves are recovering from their fall in 2023, they remain below the 3-month import coverage threshold and cover just 2 of the 4 central bank balance sheet systems.

We anticipate that the forthcoming IMF program might target building up international reserves to strengthen the country’s macroeconomic stability.

BUY: Despite a slowdown in the performance of Eurobonds, we continue to think the name remains attractive and see developments regarding the IMF as potential positive catalysts.

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- ECUA 0 1/2 07/31/30 Price

Zambia May 17, 2024

Country Report : Good Results but Gloomy Outlook

In 2023 the government continued on its path of fiscal consolidation and closed the year with a primary surplus of 0.7% of GDP, above the IMF target.

Although the president declared a state of emergency in February, fiscal figures have not deteriorated and revenues stood at 3.4% of GDP, 0.4pp above the 2023 level.

Slower economic activity in 2024 will affect tax collection in general, so we have adjusted our primary surplus to be 1.1% of GDP (previously 1.3%) and the total deficit to be 5.1% of GDP (previously 5%).

With a consent solicitation already out, we believe that the risk/reward on the name is balanced and therefore maintain our HOLD recommendation.

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- ZAMBIN 8.97 07/30/27 Price

Suriname May 17, 2024

Country Report : Measuring The Oil Revenue Boom

We estimate the government would receive USD 1.3 bn in royalties during the first five years of production.

Staatsolie contributions to the government would reach USD 255 mn in the first year and around USD 380 mn in the next years.

The government would obtain a minimum of around USD 150 mn per year and a maximum of USD 555 mn in oil profits directly.

Total and APA income tax payments to the government would reach around USD 611 mn annually.

Adding all revenue sources, we estimate that the Surinamese government would receive USD 7 bn in the first five years of oil production in our baseline scenario, which assumes an oil price of approximately 65 USD/bbl.

With increasing certainty on the development of Block 58 and positive Eurobond momentum, we switch our recommendation on SURINM to BUY from the previous HOLD.

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- SURINM 9 1/4 10/26/26 Price

Barbados May 14, 2024

Flash Note : Sun, Sand and Sustainability

Barbados kicked off 2024 with a robust 4.1% growth in the first quarter, primarily driven by the thriving tourism sector, setting a promising tone for the rest of the year.

Fiscal year 2023/2024 achieved a fiscal balance of - USD 225.9 mn (-1.7% of GDP).

Tourism from the UK has stagnated, but other markets continue to grow.

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- BARBAD 7.8 08/06/19 Price

Trinidad and Tobago May 14, 2024

Country Report : Resilience in the Face of Low Gas Prices

In the first four months of the current fiscal year revenues and expenditures have decreased by 10.2% and 8.5%, respectively.

Natural gas prices remain low, even after the slight recovery of the past few weeks. Lower-than-expected energy prices are the main economic risk for T&T as the aggressive budget estimations did not leave room for error.

Spending on wages and salaries has increased by 28.6%, following a Christmas bonus and a minimum wage hike.

Capital expenditures have remained below what is budgeted, likely to prevent a higher deficit.

We have adjusted our fiscal estimations from a budget deficit of 2.4% of the GDP to 2.8% and a primary deficit of 0.1% of the GDP from a surplus of 0.4%.

HOLD: The country offers neutral-to-positive economic indicators, low default risk but only moderate yields. 

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- TRITOB 4 1/2 08/04/26 Price

Ukraine May 14, 2024

Special Report : A Brief Guide to the Ukrainian Restructuring

The IMF’s DSA sets a hard target for debt/GDP in 2033 at 65% of GDP and a softer, referential target of 82% by 2028. It also stipulates that Gross Financing Needs (GFNs) should average 8% of GDP in the 2028-33 period.

We simulated the country’s debt accumulation dynamics under IMF assumptions and find that bondholders would have to take a 43.5% haircut, a 4-year maturity extension, and significant coupon cuts to meet the IMF targets at the baseline scenario.

If Eurobonds are swapped into a set of amortizing bonds, we see NPVs between 31.1-33.7c at a 14% exit yield, which does not offer much upside space.

The IMF's downside scenario looks very difficult to reach without significant public sector involvement; in our view, if Ukraine insists on conforming with it, bondholders would have to push for an extension to the standstill.

Given the limited upside space in the baseline and the risk of Ukraine and the IMF insisting on compliance with the downside scenario, we switch our recommendation from BUY to HOLD.

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- UKRAIN 9 3/4 11/01/28 Price

Ghana May 13, 2024

Strategy Viewpoint : Is There Value Left?

After finalizing the domestic debt exchange, we are seeing the last chapters of the Ghanaian external debt restructuring.

The last offer wasn't approved by the IMF due to breaches in some of the debt thresholds, so we slightly adjust it to move into compliance.

HOLD: Although the risk-reward profile of the bonds is tilted to the downside in our hypothesis for the base restructuring, the possible inclusion of a VRI can compensate for it.

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- GHANA 7 5/8 05/16/29 Price- GHANA 8.627 06/16/49 Price

Bolivia May 10, 2024

Country Report : As Good As Gold

International reserves stood at USD 1.9 bn in April, an increase of USD 90 mn (5%) against December (USD 1.8 bn).

Although it is good news that the BCB has stopped the fall in FX reserves for the time being, external buffers are still insufficient to cover external financing requirements.

The government is actively seeking new options to cover its external needs and has managed to refine and certify 2.67 tonnes of gold abroad, which have been added to the reserves.

We still expect the government to manage to muddle through in 2024 but the outlook remains highly uncertain due to political disputes and exports underperformance.

HOLD: We see low chances of a near-term default and limited downside at current prices but also a lack of positive drivers for upsides in the near future.

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- BOLIVI 4 1/2 03/20/28 Price

Guyana May 09, 2024

Flash Note : The Oil Blessing

Guyana continues ramping up oil production, which rose by 38.4% during 1Q24 compared to 4Q23 and 63.8% YoY.

Following the significant increase in oil production, the IMF raised its economic 2024 growth forecast in its latest revision to 33.9% from 26.6%.

Stronger-than-expected oil production and slightly higher oil prices are in line with our GDP growth forecast of 43%.

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- Guyana

Egypt May 07, 2024

Country Report : Swimming Against the Tide

The recently approved FY 2025 budget is in line with IMF targets as the government aims to increase revenues through an expansion of the tax base and other revenue-enhancing measures.

Authorities have also stressed their commitment to put debt on a sustainable path. The government is planning for a 3.5% primary surplus in FY 2025 and seeks to raise it to 5% by 2027.

However, 11.7% of GDP in interest expenditures weigh heavily on the overall balance, which is budgeted at 7.2%.

We forecast a primary surplus of 4.1% of the GDP in FY 2025 and an overall budget deficit of 7.5%, broadly in line with the government.

Budget financing will likely continue relying on domestic debt but will be helped by funding from the multi-billion deal of Ras al-Hikma.

HOLD: Egypt faces significant fiscal challenges to the sustainability of its debt and we think the spreads on offer correctly compensate for these risks but leave little room for compression.

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- EGYPT 6.588 02/21/28 Price- EGYPT 7.903 02/21/48 Price

Pakistan May 06, 2024

Country Report : Taking the Next Step

Pakistan recently completed a 9-month SBA, but the country still faces significant challenges.

Due to a persistent fiscal deficit, high debt service, and low international reserves, the government is aiming to move ahead with a longer-term EFF.

We updated our fiscal forecasts, estimating fiscal deficits of 6.8% and 6.5% of GDP in FY 2023-24 and FY 2024-25, and GFNs of 11.9% and 10.2% in the same periods.

We believe the IMF will likely require upfront reform for an EFF to be approved, which reinforces our view that it will be included in the forthcoming 2024-25 budget.

HOLD: Pakistan is exposed to liquidity shocks due to its high gross financing needs and the high yields that would complicate market access. The current yields are attractive but we see little room for spread compression.

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- PKSTAN 6 7/8 12/05/27 Price

Global May 04, 2024

EMFI Monthly Review – April

Our EMFI Core Index gained 1.1% in April, with mixed results across the board as 7 names rose, 11 names lost ground and 4 held steady. 

VENZ (+23.8%), ARGENT (+10.8%), and ECUA (+4.7%) were the month’s top performers, while UKRAIN (-13.4%), SRILAN (-4.5%) and GHANA (-4.1%) underperformed. 

Our Macro Team covered the drought affecting Zambia and Suriname, political developments in Turkey and Ecuador, and the macro-fiscal developments in Argentina, Sri Lanka and Ukraine. 

Our Strategy Team looked into the ELSALV refinancing operation, the impact of US treasury rates conditions on market access for EM countries and the relative attractiveness of GUATEM bonds compared to peers. 

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- Global

El Salvador April 30, 2024

Country Report : Will El Salvador Secure a Deal with the IMF?

In our view, the main problem in reaching an agreement with the IMF has been that the Fund has made recommendations that Bukele has ignored.

In order to ensure fiscal consolidation, we believe that the Fund would call for the restoration of the implementation of the Law of Fiscal Responsibility.

In terms of governance, the Fund's recommendations would be oriented to address three vulnerabilities: lack of transparency, corruption, and money laundering.

Bukele has doubled down on his bets on Bitcoin instead of addressing Bitcoin risks following the Fund’s recommendations.

We believe El Salvador is unlikely to reach an agreement with the Fund in the short term under the current conditions.

HOLD: The deterioration in debt sustainability due to the costly refinancing conducted last month makes striking an IMF deal more important. We’re not positive in this regard but recognize decreased short-term default probabilities.

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- ELSALV 8 5/8 02/28/29 Price- ELSALV 7 5/8 02/01/41 Price

Turkey April 30, 2024

Country Report : Tightening the Belt

The monetary policy has remained tight, ahead of a disinflation process that is expected to start in the second half of the year.

Finance Minister Mehmet Simsek has also pushed for a “prudent” fiscal policy to anchor inflation expectations, especially after posting a budget deficit of USD 59 bn in 2023.

Earthquake-related spending is one of the main challenges to return to low deficits, as we believe that it will represent around 2% of the GDP this year.

Nonetheless, the fiscal performance for this first quarter shows promise. In real terms, revenues have increased by almost 30% YoY while expenditures have decreased by 19%.

We estimate that the deficit will slightly narrow from 5.2% to 4.3% of the GDP, with a primary deficit of 2.1%.

HOLD: Despite good signals on both monetary and fiscal policy, with the 10y Z-spread at 329 bps, we think that the risk-return of the asset is well balanced.

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- TURKEY 6 1/8 10/24/28 Price- TURKEY 5 3/4 05/11/47 Price

Sri Lanka April 29, 2024

Country Report : Bitter Tax Medicine Cures the Low-Revenue Disease

Sri Lanka's fiscal situation is improving thanks to a significant jump in tax revenues since 2022, driven by reforms like an increase in the VAT rate.

Sri Lanka successfully passed the second program review by meeting most IMF targets, except for the social spending target.

While Q1 fiscal revenues were better than expected, we still maintain that the state budget target was overly optimistic. We forecast tax revenues will increase 22% in 2024.

The IMF is asking for further reforms, and future progress hinges on the government's ability to balance revenue growth with spending cuts while avoiding social unrest.

We see the latest government proposal as offering a 60% recovery on its baseline scenario when evaluated at a 12% exit yield, compared to the 66% recovery in the latest bondholder proposal.

While these estimates leave space for upsides, we retain our HOLD recommendation due to the high uncertainty that the complex instruments being discussed will find a market at competitive yields.

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- SRILAN 6 3/4 04/18/28 Price

Egypt April 29, 2024

Flash Note : Rolling Over Domestic Debt

Despite exceptional funding from bilateral allies and multilateral institutions, public finances remain under pressure from huge interest burden on domestic debt.

We estimate fiscal deficits of 7.7% of the GDP in FY 24 and 7.0% in FY 25, which means the treasury still has a lot of work to do.

In the past month, the domestic debt rollover rate, key for treasury financing, hasn’t been as solid as expected.

The government is in talks with public entities, which hold 11.5% of the EGP T-bills, to extend some of the domestic debt maturities.

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- EGYPT 6.588 02/21/28 Price- EGYPT 7.903 02/21/48 Price

Nigeria December 29, 2023

Flash Note : Violence Imperils Macroeconomic Outlook

Nigeria faces a deteriorating security environment that poses downside risks to the country’s macroeconomic outlook.

President Tinubu has pledged to make security a top priority but results after 7 months in office have been mixed.

Total deaths across the country's six geopolitical zones decreased 18.9% compared to 2022.

The biggest challenge is to increase funding allocations for security while containing fiscal expenditures.

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- NGERIA 6 1/2 11/28/27 Price- NGERIA 7 5/8 11/28/47 Price

Ethiopia December 29, 2023

Flash Note : Ignore the Rumor, Buy the News

We value a bondholder proposal to restructure ETHOPI 24 by extending the maturity and implementing an amortization schedule at an 81.5% recovery value for a 14% exit yield.

The government’s counterproposal includes moderate coupon cuts and a longer extension of the principal repayment schedule, which we assess to imply a 69.4% recovery value.

We see upside potential for both baselines if the exit yield is lower or if the government includes the repayment of missed coupons in the restructuring.

With ETHOPI 24 trading at 67.9c, the proposals have more upside than downside but there is a latent risk that the restructuring is delayed or bilateral creditors seek to impose worse terms in the future due to “comparability of treatment” concerns.

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- ETHOPI 6 5/8 12/11/24 Price

Ukraine December 27, 2023

Flash Note : A Christmas Gift from the Paris Club

The Paris Club agreed to postpone debt service payments until 2027 when the IMF program is expected to conclude. 

The IMF has emphasized that a restructuring process is needed to ensure debt sustainability in the medium to long term. 

The IMF also published its latest Article IV on Ukraine and approved the second review of the EFF program, unlocking USD 900 mn in disbursements. 

We expect a market-friendly proposal for the restructuring, with negotiations starting in the first quarter of 2024. 

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- UKRAIN 9 3/4 11/01/28 Price

Lebanon December 27, 2023

Country Report : Not Every Crisis Offers an Opportunity

Twelve times has the National Assembly tried and failed to elect a new president to fill the vacancy that started in October 2022.

To elect a president, 86 votes are required in parliament in the first round, with the number dropping to 65 votes in the second round. However, the main challenge is keeping the quorum with 86 MPs.

The legislative arithmetic is on paper favorable to the caretaker government, which is supposedly backed by the March 8th alliance, but petty infighting has made it very hard to form parliamentary majorities.

An agreement with the opposition or independents to move past the deadlock is not likely in the short term.

Hezbollah has left the session all twelve times. We expect their lack of willingness to solve the political gridlock to continue at least in the short term, particularly as long as it is focused on Israel.

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- LEBAN 7 03/20/28 Price- LEBAN 7 1/4 03/23/37 Price

Global December 24, 2020

Strategy Viewpoint : In the Crosshair(cut)

In the 209 sovereign restructurings since 1978, the average haircut stands at 40.5%, but this result may be deceiving.

Market or private restructurings represent 79% of the cases, yet their average haircut stands at 30.3%.

Amongst the market/private restructurings, agricultural countries represent the largest share and exhibit the highest haircuts.

The average haircut in market/private restructurings has been increasing consistently and stands at almost 49% between 2010-2019.

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- Global

Argentina June 19, 2024

Flash Note : Save in May, Because June is Tough

The treasury posted its fifth overall fiscal surplus in May, accumulating 0.5% of the GDP in the first 5 months and a primary surplus of 1.3% of GDP.

For the first time in the year, government revenues grew in real terms (+5.8% YoY) while primary expenditures kept falling in real terms (-28.7% YoY).

The huge increase in revenues is driven by income taxes (+93% in real terms), while taxes on foreign, including the distortive PAIS tax, also helped.

As we have said before, June will be challenging due to seasonality, so we wouldn’t be alarmed if the government posts a reasonable overall deficit.

Fiscal performance keeps outperforming our expectations; while we still think an overall surplus for the full year is difficult, we see it as increasingly feasible.

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- ARGENT 3.625 07/09/35 Price
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