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Zambia

January 18, 2022

Country Report: Zambia in 2022

Zambia’s 2022 outlook hinges on the authorities’ abilities to secure the IMF’s assistance and an external debt restructuring agreement.

The government has requested the formation of an official creditor committee by February to negotiate the parameters of the debt restructuring process.

The success in negotiations with official creditors will set the tone of the negotiations with the rest of the external creditors, and will likely unlock the IMF deal.

President Hichilema also has set in motion reforms to improve the country’s fiscal position, and we forecast a primary surplus of 0.8% of GDP, the first positive balance in more than a decade.

...

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ZAMBIN 8.97 07/30/27 Price

Argentina

January 14, 2022

Country Report: Argentina in 2022

With no elections over the year, the focus shifts to the negotiations with the IMF.

Despite the current administration wishes, the goal to accumulate a considerable amount of FX reserves seems very challenging.

We estimate the fiscal deficit to be reduced to 3.2% of the GDP from 4.1% in 2021 (or 3.1% if we account the SDRs allocation as revenues), partly due to the IMF target and partly due to the lack of financing.

BUY: Argentinian macro is a veritable disaster, but bonds trade at rock bottom prices which leaves little space for downside movement and significant room for gains.

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ARGENT 0 1/2 07/09/30 Price

Costa Rica

January 13, 2022

Country Report: Costa Rica in 2022

The main event of the year is the presidential and legislative election that will take place on February 6.

José María Figueres continues to lead the polls, but the race remains wide open. Under high uncertainty, our base case is that Figueres will win the presidency in the runoff.

The presidential debates held this week seem to have favored underdogs who were behind in the polls, increasing the probability that an outsider may get into the April runoff.

The lack of political consensus will put compliance with the IMF agreement at risk. We estimate that the primary deficit will reach -0.6% of GDP, 30 b.p. higher than the target of -0.3% agreed with the...

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

Ecuador

January 11, 2022

Country Report: Ecuador in 2022

President Guillermo Lasso has seen his popularity fall as he faces strong opposition from the indigenous movement and a fractious national assembly.

The government will find it hard to introduce its preferred policies, such as the labor reform and opening up mining and oil projects to foreign investment.

The recent approval of the tax reform together with a higher oil price will boost the country’s fiscal revenues.

Nonetheless, we expect a moderate economic growth of 2.1%, which will hurt public revenues and limit expenditures.  We also forecast a fiscal deficit of 3.5%.

BUY: Given the limited rollover risks, negligible liquidity concerns, and strong com...

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ECUA 0 1/2 07/31/30 Price

Ukraine

January 07, 2022

Country Report: Ukraine in 2022

Ukraine will likely continue introducing anti-corruption reforms to maintain international support.

The geopolitical tensions between Russia and Ukraine, the U.S., and the EU will continue in the near future.

We estimate GDP will grow 3.5% this year, slightly surpassing its pre-pandemic level. However, inflation will likely remain above the NBU target (5+/- 1 pp), as our forecast for 2022 is 8.1%.

We forecast that the government’s overall balance will be -5.1% of GDP in 2022, a deterioration over the estimated -2.1 % deficit registered in 2021.

The Russian threat raises credit volatility, but financial support from the EU and multilaterals eases the debt burd...

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UKRAIN 9 3/4 11/01/28 Price

Global

January 07, 2022

EMFI Monthly Review – December

Our EMFI Core Index rose a moderate 1.2% in December, as markets rebounded from the large 4.3% selloff registered the month before.

SRILAN (-9.3%), ELSALV (-8.4%), LEBAN (-8.0%) and VENZ (-5.7%) led the pack of underperformers, while ARGENT (+11.7%) and ANGOL (+6.8%) outperformed.

Over the month, our research team began rolling out the groundwork for our year-ahead reports for 2022 and published those for El Salvador and Nigeria.

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Global

Turkey

January 04, 2022

Country Report: Turkey in 2022

Given the currency volatility caused by unorthodox interest rate moves and an erratic policy guidance, the monetary policy path will be crucial throughout this year.

Living conditions have deteriorated and support for the political opposition is on the rise ahead of the 2023 general elections.

New instruments will likely be introduced to protect savers from inflation, and a large depreciation will push expenditures up. We expect a fiscal deficit of 4.8% of the GDP.

We also expect inflation to rise to 61% this year, as we assume no major changes in the policy regime. Nevertheless, the GDP will grow by 5.8%.

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

Ecuador

December 29, 2021

Flash Note: On the Edge

Damaged infrastructure has disrupted Ecuador’s oil production once again, forcing oil companies to pause transport activities through pipelines since December 8.

The two main pipelines of the country jointly transport 95% of total production, and the recent problems have severely damaged production.

We estimate that total losses will amount to around 0.9% of the GDP, considering that authorities estimate that output will return to pre-crisis levels by February 2022.

The government will try to compensate for these losses by accelerating investments in the oil sector.

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ECUA 0 1/2 07/31/30 Price

Sri Lanka

December 23, 2021

Flash Note: Plummeting Reserves

International reserves declined 30.1% MoM in November 2021, reaching a new record low of USD 1,6 bn.

The current international reserves would cover only less than a month of imports.

The Central Bank stated that it is taking actions to boost the official reserve assets to above USD 3 bn by the end of the year.

Overall economic mismanagement during 2021 led to a GDP contraction of 1.54% for Q3-2021.

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SRILAN 6 3/4 04/18/28 Price

Turkey

December 22, 2021

Country Report: Making the Same Mistakes While Expecting Different Results

The USD/TRY rollercoaster continues, with the lira weakening beyond 18 on Monday due to irrational policy moves and chaos-inducing interest rate cuts, before recovering to 12.3 yesterday.

President Erdogan has reiterated that rate cuts are here to stay, in line with his unorthodox economic views and Islamic religious beliefs.

Net reserves are deeply negative at USD 29.5 bn, reflecting the central bank’s inability to keep intervening in FX markets.

We believe that the current policy mix puts the central bank in an untenable position.

As the curve flattened over the past weeks, the future of the sovereign debt is tied up to the hypothetical Erdogan´s economic rati...

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

Nigeria

December 21, 2021

Country Report: Nigeria in 2022

The need to remove electricity, fuel, and exchange rate subsidies will remain the focus in 2022.

However, given the unpopularity of structural reforms among the public, we don’t expect major changes to the fiscal or exchange rate policies.

We estimate that the primary deficit will reach -2.1% of GDP in 2022, 0.7 p.p. worse than the official forecast, while the overall balance will close at -3.8% of GDP.

After a V-shaped recovery in 2021, we expect the economy to grow just 2.4% in 2022, while inflation will remain on the higher side with a forecasted 14.4% YoY increase.

Neutral to good solvency and liquidity ratios balances with the lack of fiscal consolidatio...

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

Lebanon

December 20, 2021

Country Report: A Bottomless Pit

The Lebanese pound crashed again, reaching a new record low of USD/LBP 29,000 on December 14.

Deposits in foreign currency started to increase in September 2021, meanwhile, deposits in local currency continued the downward trend that started in late 2019.

M1 has been increasing since late 2019, but M2 has decreased sharply, mainly due to the nosedive in LBP deposits, right before its recovery in the second half of 2020.

The YoY inflation rate was 143.7% in October 2021, and we believe the measures applied by the BDL will not tame the inflation rate in the short term.

BUY: Lebanese debt plunged to all-time lows even as the IMF makes progress in assessing financial s...

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

Argentina

December 15, 2021

Strategy Viewpoint: Looking Into Argentina for Opportunities

We compare bonds issued by the Province of Buenos Aires, the City of Buenos Aires, Córdoba and Mendoza, four of the biggest sub-national entities in terms of GDP and population. 

Local credits offer an attractive reward with better fundamentals than the sovereign. 

We see Cordoba’s bonds as the most attractive in our review due to its low total debt and short maturity dates. 

BUY: We pick PDCAR 25 and PDCAR 26 as the most attractive options in the space because they repay the initial investment before 2024, a high-risk year for Argentinian sovereign debt. 

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ARGENT 0 1/2 07/09/30 Price

Global

December 15, 2021

Strategy Viewpoint: Nigeria or Egypt, Tighter Than Lewis and Max

Both countries’ bonds have performed poorly in the last month, with their yields increasing between 35 and 40 bps on average.

Their sovereign curves are very similar, with Egypt’s being slightly steeper.

Given the economic fundamentals and political (in)stability, we see more value in the  short-end and belly of Egypt’s curve than in Nigeria’s.

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

El Salvador

December 15, 2021

Country Report: El Salvador in 2022

It is key to follow political events in the US, as well as economic policy decisions that will have a direct impact on El Salvador.

We believe that President Bukele will continue in his quest to concentrate power, further deteriorating the rule of law.

We estimate that the primary deficit will reach -1.5% of GDP, 2.3 p.p. lower than the surplus of 0.8% projected by the government, while the overall balance will close at -5.4% of GDP (vs. -2.5% estimated by the government).

After the economy returns to pre-pandemic levels this year, El Salvador will grow 1.5% in 2022 as the main determinants of growth in 2021 - public spending, private consumption and exports – norm...

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