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We focus on the largest African commodity exporters within the EMFI universe, which would benefit from the current price boom.
The benefits of a bull commodity cycle will enhance liquidity buffers and help improve fiscal accounts, but getting countries back on a debt sustainability path takes more than that.
The emerging countries that benefit must take advantage of the tailwinds to undertake structural changes that can improve long-term solvency.
Lebanon has the highest number of Covid-19 deaths per million inhabitants in our sample of Middle Eastern countries
Only Palestine (3.33%), Iran (1.76%), and Egypt (1.11%) have vaccinated a smaller share of their population
Lebanon has so far received 642,770 vaccine doses, sufficient to fully vaccinate just 4.7% of the population
We believe that the goal proposed by the Minister of Health of vaccinating 80% of the population by the end of the year is unlikely to be met.
Recent concessions by Maduro, including a new CNE, rekindled hope of a change in the stagnant status quo, especially given a moderate positive reaction from international players.
Nonetheless, Guaidó’s core demand is a clear schedule for short-term presidential and legislative elections, to which Maduro is extremely unlikely to agree.
The new CNE is regarded as a ploy to further divide the opposition. Guaidó rejected its designation and continues to antagonize alternative leaders who deem it a political victory.
In our view, the dynamics of the political stalemate haven’t changed since our last report. Maduro made some low-cost concessions but d...
Although Russia announced plans to withdraw military forces from the Ukrainian border on April 22, it left behind almost 80,000 troops.
Moscow could be pressuring Kyiv to resume the water supply agreement to the Russian-occupied region of Crimea, which is full of Russian military assets.
Russia is also consolidating its power over the Black Sea, an important maritime flashpoint.
U.S. Secretary of State Anthony Blinken’s visit did not result in additional military aid or arms sales, disappointing Ukrainian authorities.
We think that the U.S. will take the opportunity to tie its support to domestic reform progress.
HOLD: The successful issuance of UKRAIN ...
Violence and crimes are on the rise this year, as kidnappings and killings by unlawful groups affect large swaths of the country.
The Global Terrorism Index list Nigeria third overall in the world, mostly due to the activities of the Boko Haram jihadist group.
The Chandler Good Government Index ranks Nigeria's government as the third-worst among the 104 countries analyzed, only ahead of Venezuela and Zimbabwe.
Buhari’s government is facing criticism from its own party allies.
HOLD: The current prices at which the debt is traded and the net profit that a new commodity supercycle would imply make us decide to HOLD the position in Nigeria.
Authorities announced a new reform package, following the 2016 success which achieved a GDP recovery coupled with a general improvement in macroeconomic indicators.
This time the reforms are focused on making growth more resilient and inclusive, mostly by targeting greater participation in the non-oil economic sectors.
We think that the goals are ambitious for a 3-year time horizon, especially because of the large investments required.
Likewise, we do not discard new tax hikes, even if authorities have so far denied it is part of their plans.
BUY: Egypt achieved a primary fiscal surplus and liquidity indicators are positive and in the growing path. The future ...
April was the best month for our EMFI Core Index since November as it climbed 4.4%, cutting its YTD loss to just 0.4%.
Increases were registered all across the board this month, but the best results were mostly concentrated in some heavily discounted credits.
The market’s nervousness due to volatility in the Treasury rates seems to have decreased in April. Equities and commodities enjoyed great performances too.
Our Macro Team focused mostly on analyzing the final macroeconomic figures for 2020, the first numbers of 2021, and updating our forecasts; however, politics and the ongoing pandemic were also recurring topics.
In our monthly EMFI Digest, we look at a...
The latest authoritarian move of President Bukele would drive away from the IMF, which is increasingly promoting conditions of governance in its programs.
Having less access to external financing to cover its financing needs significantly increases liquidity risks
We calculate that international reserves went from covering 3.8 months of imports in December 2019 to 2.4 months in March 2021, below the 3 months recommended by the IMF.
We think that the US would be willing to help El Salvador in exchange for President Bukele making concessions in terms of strengthening the rule of law.
HOLD: The political events of the last week have reduced the possibility of an agree...
GHANA 30, issued in 2015, has a differentiating element in the country's curve, a partial guarantee for 40% of the total nominal amount supported by the World Bank.
The partial guarantee on the bond keeps it two risk ratings below the rest of the country's bonds.
The bond's yield is 6.59, 91 bp above the implicit yield according to its structure, which confirms that it is a BUY opportunity.
Pan American Energy issued a 9.125% coupon bond.
The company has strong fundamentals and offers an attractive yield in the actual context of low returns.
Turkey reached a record number of cases two weeks ago, with the 7-day rolling average of new daily COVID infections reaching a high of 60,147.
A 17-day nationwide lockdown is already succeeding in bringing down the number of infections, which have fallen this week.
The Health Ministry expects to vaccinate all over 20s by July, which seems unrealistic considering the slow advance so far.
Our estimates suggest that GDP would register a 5.7% expansion in 2021, although we acknowledge that uncertainty around the forecast has increased.
HOLD: Controlling the new wave of contagions could limit the downside for bonds, but we don’t see any major positive catalys...
Zambia’s real GDP shrunk 3.0% in 2020, in line with our own estimation, and less than the IMF forecast of 3.5%.
PMI recorded values below 50 across Q1 2021.
The inflation rate stood at 22.7% YoY in April 2021, way above Bank of Zambia’s (BoZ) target.
We forecast real GDP growth of 2.0% for 2021 and an inflation rate of 22.2%.
ZAMBIN 24 has performed well in the last month, supported by positive developments in the negotiations between the IMF and the government regarding a new lending program.
The new pro-government Legislative Assembly removed the magistrates (incumbents and alternates) of the Constitutional Chamber of Supreme Court and the Attorney General
The international community showed its repudiation to the authoritarian actions by President Bukele
Having the powers in his favor increases the risk that Bukele will bypass the law and somehow allow himself to run for reelection
We believe that the concentration of power around Bukele will make it difficult to reach an agreement with the IMF
In the medium term, if the Salvadoran government cannot access financing from its traditional international allies, we could see a shift towards non-tradit...
In 2020, Barbados’ economy fell -18%, Bahamas’ -16.3% and Jamaica’s -9.9%.
The Bahamas had the worst performance in our group with a decrease in exports of goods and services of -65.3%.
The Caribbean countries have an advantage because their main sources of tourists are advanced economies that will likely complete their vaccination programs in the 3Q21.
However, we believe that the Caribbean countries will experience a rebound of international tourism as of 4Q21 due to their slow vaccination process.
HOLD: The improved outlook for tourism in 2022 should open up opportunities in The Bahamas’ curve, but not so much in the Barbadian or Jamaican...
Mid-term elections are scheduled for November 14. Half of the seats in the lower house and a third of those in the Senate will be on dispute.
The ruling party currently has 46% of the Deputies and 57% of the Senators, but polling figures suggest that the opposition could outperform them this time around.
Results in the Buenos Aires Province will be in the spotlight, as losing in the mid-term elections usually precedes a loss in the presidential elections two years later.
BUY: We continue to like the optionality in ARGENT due to the limited downside at cheap valuations but regard the credit as a long-term play.
The SBP aggressively loosened policy when the pandemic started, with the policy target rate almost halving to 7% in June.
But the expansive monetary policy stance did not translate into an important increase in credit to the private sector.
The aggressive expansion of broad money has moderated this year as monetary financing to the Treasury slowed down due to a tighter fiscal policy.
We believe the current expansive monetary stance will continue despite inflation acceleration (from 5.7% YoY in January to 9.1% in March).
The SBP is prioritizing the economic recovery over rising inflation concerns.
Bolivia held regional elections to choose governors, mayors, and other regional representatives.
The turnout of the event remained high at 85.9%, 2.5 p.p. less than the previous election.
Incumbent party Movimiento al Socialismo (MAS, left) only won 3 out of 9 governorships.
MAS secured 240 mayors, but only 2 out of 10 from capital cities.
HOLD: We maintain our hold rating, short-term debt payment schedule keeps investors safe, but yield remain unattractive.
The current account surplus was 1.5% of the GDP in 2020, a y-o-y decrease of 83%.
The main reason behind the fall was the plunge in oil prices, caused by the collapse in demand due to the pandemic.
Angola is now benefiting from the recovery in oil prices. Its FX rate has stabilized, creating some space for a loosening monetary policy after 2 years of unchanged rates.
The country is in a very fragile position, with downside risks related to a new global wave of COVID cases that could push oil demand (and prices) down.
SELL: Short-term improvement in the credit should not be interpreted as resolving sustainability concerns, highlighted by solvency indicators that are...
Zambia's debt is moved by progress in talks with the IMF or the increase in the price of copper
Although the fiscal outlook is very complicated, the net impact of a new commodity cycle could be an increase of up to 15% on GDP
For holders of Zambian government securities, the best thing now is to wait and see how the positive factors of the MFI and the commodity cycle affect an eventual negotiation.
Ghana registered real GDP growth of 0.4% in 2021.
The result was close but slightly below our own estimate of 0.6%, and lower than the forecasts of the IMF and the government of 0.9%, or the 1.4% estimated by the World Bank.
The inflation rate stood at 10.3% YoY in March 2021, slightly above Bank of Ghana’s (BoG) target.
The government placed four Eurobonds for USD 3,000 million with yields between 6-8% with the intention of carrying out a liability management operation. The operation had a target of 5 billion dollars, but it did not reach the interest rate target and the government decided to place less than originally planned.
HOLD: Despite the partial fail...
We estimate that nominal GDP would grow in a range between 30.7% to 75% in the first year of offshore oil production
The government of Suriname would receive around USD 640 mn in oil revenues in 2026, 24.9% of the current GDP.
Nominal GDP growth could dilute public debt from the current level of 140% of GDP to 71%-95%
Those benefits would hopefully come in 2026 when oil production fully starts, and the government has not a strong fiscal position to wait until that time
SELL: Current prices look overtly optimistic in our view. Any sustainable deal is likely to require substantial liquidity relief over the short to mid-term, which does not looked priced-in on bonds.<...
Up to November, Sri Lanka has run the highest fiscal deficit since the civil war ended (-10.5% of GDP).
Not only has fiscal spending expanded to mitigate the impact of the COVID-19 crisis, but revenues also sank to their lowest level since 2009.
There are no signs of a reckoning, with no appetite to apply a fiscal reform to improve metrics of debt liquidity and sustainability.
Interest payments will eat 63% of fiscal revenues this year, while the debt-to-GDP ratio will climb to 109.9% (from 98% in 2020).
SELL: The latest movements to obtain financing appear to ensure the payment of SRILAN 21 in July; however, sustainability after that date will remain compromised.<...
We emphasize three of the most relevant sub-sovereign issuers: the Buenos Aires province, the Autonomous City of Buenos Aires (CABA), and Mendoza.
HOLD: We consider Buenos Aires Province as a HOLD due to low cash prices relative to our expectation of recovery values.
BUY: We consider MENDOZ 29 as a BUY since the bond offers a high return despite strong fundamentals.
BUY: Compared with other provincial bonds mentioned above, BUEAIR 27 provides a higher yield than our assessment of the implicit risk.
Authorities started deregulating the downstream sector back in April 2020, but have not been able to go the whole way.
Local petrol prices haven’t been updated since January 2021, despite the increase in international crude oil prices.
At the current consumption levels, the total subsidy is estimated at USD 11 mn a day.
The new Petroleum Industry Bill is being discussed in the National Assembly, which is aiming to approve it by April 2021.
HOLD: The current prices at which the debt is traded and the net profit that a new commodity supercycle would imply, make us decide to HOLD the position in Nigeria.
President-elect Guillermo Lasso takes over in a month, and the focus has moved from his surprise victory to the governance issues he might face.
The President of the National Assembly will be a key player. We believe the center-left parties are the frontrunners for the post.
Lasso’s first test will be to secure financing for the rest of the year, while figuring a way to face expensive campaign promises such as the minimum wage raise.
He has also promised zero deficit in four years, which would require austerity measures which were not openly discussed during his campaign.
HOLD: After the massive post-election tightening in yields, Ecuadorean bonds are just ov...
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...
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...
