Despite criticism from human rights organizations for the deterioration of the rule of law, President Bukele maintains high popularity levels among Salvadorans.
In our baseline scenario, we consider that it is very likely that Bukele will run for and win the 2024 presidential elections.
Although a year and a half is an eternity in politics, we believe that Bukele will succeed in gaining international recognition if he is elected for a second presidential term.
We adjust our fiscal deficit forecast to 4% of GDP from 5%, with a primary balance of -0.6% of GDP.
BUY: We revise our fair value estimates to the upside on better-than-expected fiscal results and a lower pro...
Market pessimism around debt sustainability has persisted during H1-2022, limiting the government’s financing options.
Authorities opted to fund their budget with operations with the Bank of Ghana.
The deterioration in macroeconomic conditions forced the government to request assistance from the International Monetary Fund.
We forecast an annual inflation rate of 49.2% and a GDP expansion of 3.7% for 2022.
BUY: Cash prices are below our conservative recovery value estimates of 49-57% at a 12% exit yield, which makes us think that the market is overreacting to the admittedly poor fundamentals.
Our EMFI Core Index fell 2.1% in July, adding to the massive 13.3% plunge seen last month and to the heavy losses in April and February for an accumulated 25.6% loss so far this year.
ELSALV (+15.0%) was the top outperformer of the month, rebounding from an oversold position as the government announced a secondary-market voluntary buyback program.
BOLIVI (+3.0%), JAMAN (+2.9%), TRITOB (+2.1%) and COSTAR (+1.6%) were the other positive performers, as credits in the higher quality brackets beat their riskier peers.
UKRAIN (-17.9%) plunged as the government announced that it would seek a 2-year standstill on Eurobonds, while political instabilit...
After reporting a considerable contraction in its economy and a higher fiscal deficit, Trinidad and Tobago will enjoy the benefits resulting from the global rally in oil prices.
The government is stable, and while there have been some protests against police killings, we do not expect major changes in the political landscape.
We believe that the fiscal deficit will decrease from 8.2% of the GDP in the previous fiscal year to 4.6%, driven by the windfall in the energy sector.
Likewise, the government announced that the debt-to-GDP ratio has fallen from 77% to 72% and will keep declining until year-end.
We estimate that the GDP will grow by 5.3%. Inflation will decel...
President Rodrigo Chaves began his term in office with fiscal reform proposals that somewhat contradict the targets agreed with the IMF’s Extended Fund Facility (EFF).
We believe these reforms would substantially increase public spending and thus the fiscal deficit, which we estimate will close at 5.8% of GDP by the end of the year.
Regarding our macroeconomic outlook, we have adjusted our inflation forecast to 10% by the end of the year.
We have also updated our GDP growth projection for 2022 to 5%, a slowdown compared to the 7.8% registered last year.
SELL: We do not see an improvement in solvency and liquidity indicators and the 6.7% average yield is not a...
Soaring oil revenues are improving Angola’s economic outlook.
We believe higher oil exports will increase the current account surplus to 11.4% of GDP. We also expect an exchange rate appreciation of 31.1% for 2022.
A slight increase in oil output mixed with the income effect created by the soaring external revenues will boost real GDP growth to 4.7% according to our estimates.
Presidential elections are less than a month away, and João Lourenço is still perceived as the favorite to secure a second term.
HOLD: Despite improving fiscal and external accounts, the yield curve remains flat above 12%. The credit is vulnerable due to its issuer’s...
We estimate that the overall balance will reach -4.7% of GDP in FY2022/2023, a wider deficit than the -4.3% estimated by the government.
Considering the results of 1H2022, we adjusted our forecast upwards to 8.9%, but the current economic crisis in the US represents a major threat to the Bahamian economy.
Higher tourism receipts are not enough to offset the rising import bill driven by the commodity rally. So, we increase our current account deficit forecast to -9.4% of GDP.
Despite the delay in the publication of inflation figures, we believe that the rising commodity prices have pushed domestic prices up, especially in food, transportation, and electricity.
President Bukele announced a voluntary buyback of ELSALV 23 and 25 at secondary market prices to be carried out in 6 weeks.
Finance Minister Alejandro Zelaya indicated that the government would finance the deal with an existing USD 575mn in IMF SDRs and a USD 200 mn CABEI loan.
Pure cash operations (like the one being proposed) are very rare, as governments normally issue fresh bonds to finance the buyback. Execution below par is also unusual.
The buyback could cost El Salvador USD 600-700 mn, which are adequately covered between the SDRs and multilateral loans.
We are seeing increasing market chatter over the possibility of a tolling agreement to suspend the effect of the Statute of Limitations on defaulted Venezuelan bonds.
The Guaidó administration has in the past stated a positive disposition to sign such agreements and we think interests are aligned for them to do so in the next year.
The Maduro government put a concrete proposal on the table in 2020, but a tolling agreement would lack any effect in NY courts without Guaidó’s participation.
Ultimately, the Statute of Limitations prevents court action after 6 years but doesn’t strictly invalidate bondholder claims: these could still be admitted to a...
The first half of the year has been marked by debt restructuring negotiations with external lenders, and everything points to a second half driven by the same topic.
The government seems close to an agreement with official creditors to unlock the IMF bailout and start negotiations with commercial lenders.
The fiscal consolidation plan seems to be on track, and we expect a primary surplus of 1.7% of GDP in 2022.
The bullish copper market from H1-2022 has improved the external revenues, and we forecast a current account surplus of 13.4% of GDP in 2022.
After shedding 26.7 pts YTD to trade at an average of 50.6 cents, Eurobonds are now below our fair value estimates. ...
Endless protests finally forced President Gotabaya Rajapaksa to resign on July 15. Prime Minister Ranil Wickremesinghe was appointed acting president.
On July 20, Sri Lanka’s parliament elected Wickremesinghe as president, which we believe could inflame protests, but at the same time provides continuity to IMF talks.
Recent events could prevent the country from reaching a staff-level agreement with the IMF by August.
Considering the current political crisis, we have revised our inflation projection to 168.6% by the end of this year, while we expect a GDP contraction of 3.2%.
Due to the lower access to financing, we updated our fiscal deficit forecast for 2022...
Today, the government presented a consent solicitation to delay all Eurobond payments by 2 years.
Interest accrued during the grace period would be paid upfront at its end or capitalized into the principals.
The proposal received immediate support from official and private creditors, including the Paris Club and a group of large institutional bondholders.
Prices held steady after the announcement, as a restructuring process was already priced in on the bonds, which are 16 pts down MoM.
The IMF agreement did not fulfill its destiny as the long-awaited positive catalyst that would stabilize the Argentinean macro, and the outlook continues deteriorating.
The ruling party internal fights have intensified since the agreement, with VP Cristina Kirchner (CFK) gaining ground against President Alberto Fernandez (AF).
The new economic Minister, Silvina Batakis, stated that she is willing to honor the IMF agreement, reducing the probability of a government radicalization.
Argentina, although favored by improving terms of trade, hasn’t able to capitalize on the higher grain prices.
BUY: Argentina is trading at rock-b...
President Buhari is focused on protecting the status quo to improve the chances of the All Progressive Congress party winning the 2023 presidential race.
Candidates from the two major political parties, the All Progressive Congress and the Peoples Democratic Party, will once again be the main contenders for the presidency.
Fuel oil subsidies are consuming the additional revenues obtained by the crude oil industry thanks to the commodity bull market.
We revised our GDP growth forecast to 4.3% (up 1.9 p.p.), and we also increased our 2022 inflation rate forecast to 17.8% (up 3.4 p.p.).
Given the mix of a low debt burden plus good liquidity ratios with a lack of polic...
We compare Trinidad & Tobago against Bolivia and Jamaica, to analyze how their credits have performed in the recent EM selloff.
TRITOB is rated a BB+, four steps above its peers, with better solvency and liquidity indicators.
We expect a real GDP growth (6.1%) in 2022 after six years of recession.
The yield (6.5%) does not make for an attractive risk/reward proposition. We maintain our HOLD rating for TRITOB.
The war in Ukraine has deeply hurt Egypt's public finances, and the measures implemented by the government have caused discontent among the population.
Trying to calm the waters, President Al-Sisi will participate in a “national dialogue”, however, we believe there will be no major political changes.
Even though Egypt’s fiscal deficit narrowed from 5.9% to 5.4%, authorities will struggle to finance it given the domestic debt sell-off by foreign investors.
After reaching 6.2% in FY 2021/22, we expect economic growth to slow down to 4.6%. Likewise, despite inflation decelerating for the first time in the year in June, we believe that it will reach 13....
We believe that the government will remain stable despite political tensions related to rising inflation.
Fiscal results during FY2021/2022 were better than expected, so we adjusted our overall balance forecast upward from 0.4% of GDP to 1.9%.
With these results, public debt levels will fall to 91.0% of GDP by the end of the FY2022/2023, its lowest level in 20 years.
Considering the external headwinds, we reduced our economic growth forecast for 2022 from 4.8% to 3.1%.
SELL: High inflation will pressure the FED to increase the interest rate and extend the outflow from EM while we see more room for the price decline.
Oil output was 706 tbd (+29.8% YoY) in June and 698 tbd (+36.3% YoY) in 1H22, according to OPEC Secondary Sources. Direct Communication data came at 727 tbd (+14.8% YoY) and 751 tbd (+38.0% YoY), respectively.
Bloomberg reported exports at 375 tbd (-0.8% MoM, -20.3% YoY) and Reuters at 631 tbd (+61.1% MoM, -1.6% YoY).
We estimate that the value of exports in 1H22 was USD 8.8 bn (+65.3% YoY) and expect them to end the year at USD 20.6 bn (+76.4% YoY).
Ghana has been one of the worst-performing emerging markets of the year, with a total return of -29.6% on its benchmark sovereign bond.
The government has been stubborn regarding its fiscal consolidation path, although the market has already disapproved it.
Bailout talks with the IMF have already begun, aiming for an economic support program that would last at least three years.
Protests in the country are arising due to the increasing cost of living, as inflation surged to 27%.
Even in a debt restructuring scenario, the Eurobond prices are so low that the future returns are showing a positive asymmetrical distribution.
After intense protests, President Gotabaya Rajapaksa has finally offered his resignation, which will become effective on July 13.
PM Ranil Wickremesinghe and the whole ministerial cabinet also offered to make way for the formation of a broad unity government.
The president of parliament will take charge of the presidency until July 20, when the legislature will elect a new interim president.
The political crisis could set back negotiations with the IMF and delay a debt restructuring.
Eurobonds dropped 2 pts, to trade at an average of 28 cents, as markets digested the news. Prices are increasingly looking attractive as they become consistent with significant debt re...
Confrontations between Evo Morales and President Arce are exposing some cracks in the ruling party.
The government halted monetary financing during H1-2022, but we expect that to change by the end of the year because of the lack of alternative financing sources.
Despite the rally in the commodities market, we expect the current account balance to return to negative territory, with a forecast of -0.8% of GDP.
We revised our growth forecast downwards to 2.6% from 3.0%, given the external and domestic challenges.
BUY: High commodity prices are lending support to external accounts and international reserves, which makes the yields on offer an attractive ris...
There are growing political risks due to the division of the ruling coalition.
We maintain our overall balance surplus forecast of 0.1% of GDP, and a primary surplus of 2.0% of GDP, complying with the 1.7% goal initially required by the IMF.
Although the delay in the IMF disbursement would not have an impact on the budget, it increases fiscal vulnerabilities.
We improved our economic growth outlook for 2022 to 2.2% from 1.2% thanks to the commodity bull market.
SELL: In our view, overly high prices skew the risk/reward on the bonds to the downside, as they reflect only the most optimistic scenarios and not the potential for an adverse restructuring.
The country is under stress due to rampant inflation, persistent depreciation, and significant external risks.
President Erdoğan has used foreign policy as a campaign tool to please nationalists and Islamists, while discontent is growing because of deteriorating living conditions.
The opposition faces a tough time choosing a candidate for the 2023 elections. CHP’s leader Kılıçdaroğlu is well positioned to become the nominee, but remains unpopular with the public.
We believe that there will be a fiscal deficit of 4.0% of the GDP and a primary deficit of 0.9%, with rising risks on expenditures considering alternative inflation measures.
We estimate t...
Our EMFI Core Index fell for the 6th consecutive month. The 11.5% drop was the biggest since March 2020, and the index accumulates a 23.4% decline so far this year.
VENZ (+3.6), SURINM (+1.8%), and BARBAD (+1.2%) outperformed while UKRAIN (-27.8%), LEBAN (-26.2%) and ECUA (-23.7%) posted the worst results of the month.
Our Research Team followed political developments in Ecuador, Lebanon, and Sri Lanka, while keeping an eye on macroeconomics and valuations.
Less than 2 months away from the fifth anniversary of the country’s default, the 6-year Statute of Limitations looms large over Venezuelan bonds.
The restriction on legal action applies to each payment separately (whether it is a coupon or principal amortization). For the first missed coupons, the limit goes into effect at some point between October 2023 and May 2024 (depending on the bond).
However, there is also a larger threat on principal payments, which applies to 6 sovereign bonds, 3 PDVSA bonds, and the ELECAR bond before 2027.
In our view, any bond with principal repayment before 2023 (minding sink schedules) and, critically, VENZ 34, should be avoided unle...
Since the beginning of the war, Ukraine's fiscal position has been badly damaged, and although external financial aid continues to increase, it is not enough to cover the fiscal deficit.
Some macro indicators have improved so we have revised and updated our 2022 GDP contraction forecast to 32.2%.
Despite foreign exchange and capital controls, inflation continues to rise reaching 18% YoY in May, forcing the NBU to increase the interest rate from 10% to 25%.
The war looks set to extend beyond original expectations and authorities are reconsidering restructuring their Eurobonds. We expect early steps to be market-friendly and retain our HOLD recommendation.
The Minister of Economics Martin Guzman resigned last Saturday, further weakening the position of President Alberto Fernandez vis-à-vis his shrewd VP.
The new minister, Silvina Batakis, is more politically aligned with VP Cristina Kirchner.
We believe the probability of a regime change after next year’s presidential election increases with this decision.
We maintain our 0.4% of GDP fiscal forecast for Jamaica
We reduce our forecast for Barbados from -2.7% to -3.2% due to the worse than expected results in FY2021/2022
Due to the better-than-expected performance of revenues and economic activity, we reduce our deficit projection for The Bahamas from -6.7% to -5.3% in FY2021/2022 and from 5.8% to 4.6% in FY202/2023
We recommend to SELL The Bahamas and Jamaica due to weak fundamentals, deteriorating debt indicators and relatively low yields.
For Barbados, we maintain our HOLD due to significantly better external liquidity.