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Real GDP growth slumped to -6.9% last year. In 2020, real GDP could contract by 12% as the dollar shortage puts a massive drag on nonfuel imports.
The current deficit account reached 26.9% of GDP in 2019.
In January 2020, foreign reserves were at USD 29 bn, of which USD 22 bn are liquid, but USD 18 bn of those are mandatory reserves. Lebanon’s central bank only had USD 4 bn (6 weeks of imports) in freely available liquid assets.
The government proposed that public sector foreign currency debt payments should be compatible with current account dynamics and foreign exchange reserve accumulation objectives.
We think that Lebanon’s government would have to ask for a grace period or a large haircut to reach this target because it will be difficult to reduce the current account deficit in the current global economic environment.
Additionally, the government does not plan to finish the public debt restructuring until December 2020. As we mentioned in previous reports it is unlikely that the government will achieve a high haircut in 9 months.
The government also mentioned that one of the next steps will be to start discussions with multilateral partners on potential external support.
The presence of a multilateral like the IMF in the debt restructuring would influence a better debt sustainability analysis, which would prevent the government from becoming a serial defaulter.
Continue ReadingPolitical tensions on the doorstep and a complicated fiscal deficit, Egypt and Ukraine have some similarities despite the obvious differences with which they are associated.
The latest cabinet changes and delays in key reforms in Ukraine are misinterpreted by the markets.
Despite the high deficit and the magnitude of the next payments, Egypt has reserves almost twice as large as Ukraine.
There may be an opportunity to enter the current prices of Egypt, with lower than those of Ukraine and with better yields.
In any case, the impact of the pandemic still seems unpredictable for both countries.
Continue ReadingIn December 2019, Brent was trading at 67.5 USD/bl, 2020 Budget estimated at 55.0 USD/bl and is currently trading at 24.7 USD/bl, the lowest level since 2003.
For that reason, the minister of finance, Vera Daves, announced today that the budget will be revised and the final version will be submitted at the Parliament before May 15th
The new projection of oil price will be below 35 USD/bl and they estimate an oil production of 3,726 tbd.
Daves also said that they have a forecast of an economic contraction of 1.21% in 2020.
On the other hand, yesterday Standard & Poor’s downgraded Angola’s long-term foreign and local ratings to “CCC+” from “B-“.
The first concern of the government is the amortizations scheduled for this year, in the original 2020 budget amounted to USD 14.9 bn and they have scheduled USD 700 mn for the rest of the year for payments of bonds.
We do not discard that Angola will tap the IMF’s Rapid Financing Instrument, that would be equivalent to USD 272 mn, and a reschedule of bilateral debt with China, Angola’s main creditor.
Coronavirus: President João Lourenço decrees a state of emergency from today, to combat the spread of the coronavirus, which already has three cases in the country.
Continue ReadingThe COVID-19 crisis is raising a difficult question of public policy for emerging market economies with low fiscal space, which have to reconcile economic and social policy with debt service.
The relation between liquidity and solvency problems is not straight-forward: the COVID-19 shock, which presents liquidity challenges first and foremost, can unearth underlying solvency problems and can also turn liquidity problems into solvency ones if improperly managed.
We’re already seeing some early calls for an international debt holiday to exempt countries from paying during the COVID-19 crisis. Multilateral organizations are also calling for bilateral lenders to suspend debt service obligations from poor countries.
Under the current juncture, liquidity problems should be considered more closely than usual, as they could become problematic if they present alongside stress in the social crisis, especially given that international markets are currently difficult to access.
Countries undergoing restructuring processes will likely see these stagnate, as adverse international conditions mean they have to impose higher haircuts to their creditors.
We look at short-term debt service indicators and find that the debt of the Dominican Republic is probably rich, while that of Angola and Suriname is overtly punished.
Continue ReadingThe mining sector is key to Suriname's economy. Gold exports represented an average of 65% of exports in the last decade.
In total, legal gold production would have reached 1.25mn oz in 2019, 6% less than in 2018.
We estimate that gold production will remain relatively stable in 2020, although internal conflicts persist as downside risks.
In 2020, the EMFI Securities forecast for the average price of gold is 1650 USD/oz, which represents an increase of 18.3% compared to 2019 mid-price.
In this scenario, exports would increase by 8% and reach USD 2,390 mn in 2020, also considering a 40% reduction in oil exports.
Although tax revenues may rise due to the increase in the price of gold, this impact would not be significant because Suriname could be at the beginning of an economic crisis.
The latest measures of the Bouterse government raise doubts about the country's ability to assume the next debt payments, despite not being high amounts.
SURINM 9.25 2026 closed this Thursday at 56.4 cents on the dollar, accumulating a 35% drop in March.
The YTM reaches 22%, reflecting levels of very high uncertainty, which usually precede a default.
As of March 25, there are only 8 confirmed coronavirus cases. The first case in Suriname was detected on March 17. The growth of the cases is lower than that of the rest of the world. As of March 25, air and land traffic from the capital Paramaribo to the interior of the country were restricted to contain the coronavirus. Only traffic for the transport of goods and food will be allowed.
Trying to defend the exchange rate, on March 21, the government passed a law that prohibits currency transactions and requires the use of the official exchange rate. The measure was widely rejected by banks and companies in the country. On March 24, banks, and manufacturing companies called for a strike
Continue ReadingThe coronavirus outbreak is having two different effects in Sri Lanka’s economy.
Recently oil prices slump could reduce oil import bill by USD 1,587 mn, if the government increase slightly the oil imports volume and Brent oil prices average USD 39.7/bl during 2020.
This positive effect could compensate the revenues fall in tourism and transport from the current account.
During 2020, we expect travel and transport exports to fall 18% and 5% YoY, respectively.
These imply a revenue loss of USD 712 mn, if the international flight restrictions and quarantine are lifted in May 2020 and both sectors start to recover during the second half of 2020.
Another source of disequilibrium could be a potential fall in remittances from abroad due to the global recession.
The bonds made up some of the ground lost in the past two weeks thanks to the government's announcement that it would seek to defer payments on bilateral and multilateral loans.
The news was interpreted as giving priority to bondholders in the midst of the crisis generated by COVID19.
The SRILAN 7.55 2030 bond closed on Wednesday at 69.74 cents on the dollar with a daily increase of 21%, after falling 45% in the previous two weeks.
The SRILAN 6.25 2020 bond, which comes due in October, rose 2.65% today to close at 95.74, presenting a YTM of 15.27%.
Tomorrow the government will open an auction to issue up to USD 220 mn in 7-month, 4-month, 1-year ,3 -years, 4-years and 10-month treasury bills. Interest payments will be semi-annual and the date of settlement will be on April 1.
On Monday, President Gotabaya Rajapaksa announced a set of measures to offset the economic impact of the coronavirus spread, including tax collection delays, credit card bills delay, and intervention in the debt securities market. Bank of Ceylon, People’s Bank, and National Savings bank will intervene in the government securities market, funds will be used to invest in Treasury Bonds and Bills with interest rate at 7%.
President Gotabaya Rajapaksa asked international donor agencies to provide debt moratorium to nations most vulnerable to the coronavirus shock. The president also urged the World Health Organization to support the request in multilateral and bilateral agencies.
Continue ReadingIn the past we have stressed the exposure that Turkey has to external shocks, due to its high dependence on energy imports and the major role that tourism has on its fiscal revenues.
Tourism accounts for 52% of total services exports and 12.6% of total exports.
Some of the major partners for Turkey in tourism and trade are among the most affected countries by coronavirus outbreak.
However, as a net importer, Turkey is one of the countries that benefits the most from the collapse of oil prices.
After the 2014 oil prices fall, the net effect on the current account was 1.1% of GDP.
The ghost of the 2018 currency crisis is still walking around as Turkish lira weakened nearly 0.4% over concerns about the impact of the coronavirus on March 17th.
Turkey has pending interest and principal payments up to USD 8,047 mn for the rest of 2020 and amortizations scheduled that amount USD 25,450 mn.
At first sight, it does not look like that they will face complication to meet this amount which still can be covered by international reserves
However the ambitious goals set in the New Economy Program are practically discarded.
The current COVID19 global crisis reveals the treats faced by Turkey of an exchange rate shock that could shake up its debt.
Despite the fact that immediate payments are relatively secure, the magnitude of the crisis and the impact it has in Turkey could change these perceptions.
Bonds along the entire curve fell approximately 10%. The YTM of TURKEY 11,875 2030 and TURKEY 7,625 2029, at 8.75% and 8.67%, are the most eye-catching in the curve.
The number of foreign tourists arriving in Turkey jumped by nearly 3.8% in February despite the coronavirus pandemic prior to worldwide travel restrictions, official data showed on March 23. However, there was a significant slump in the number of tourists coming from China, where the virus emerged in the city of Wuhan in December and has since spread across the world, restricting international travel. A total of 3.52 million tourists arrived in the country in the January-February period, a 9.68% year-on-year increase, the data showed.
According to Reuters, shops closed across Turkey on Thursday to help halt the coronavirus spread. Clothing retailers and malls shuttered, with some 530,000 employees and annual turnover of USD 160 bn. Ankara is eyeing potential measures beyond those announced by Erdogan, including on taxes and unemployment insurance, which could be taken in the future, the two sources told Reuters.
Continue ReadingDespite this negative outlook, Jamaica has the fiscal and external buffers to face the coming crisis.
Jamaica’s government is currently undergoing the 2020 budget debate in the House of Representative, which was opened by the Minister of Finance on March 10 and will end on March 24.
Jamaica’s Finance Minister Nigel Clarke presented to the House of Representatives a JMD 25 bn (USD 183 mn or 1.2% of GDP) fiscal stimulus package to cushion the impact of the virus.
In total, the expected cost of the tax-reduction measures, effective April 1, will amount to JMD 18 bn in 2020/21.
So far, the government has summited two supplementary budget for the 2019/20 fiscal year, and the overall budget surplus went from an initial 0.2% of GDP to 0.01%, while primary surplus went from 6.9% to 6.8% of GDP.
Regarding the 2020/21 budget, the first figures presented by the Finance Ministry in February pointed to a decrease of the primary surplus from previous levels of 7.5% of GDP to 5.1%
International reserves (IR) have grown steadily in the last 6 years, going from USD 1.7 bn in August 2013 to USD 3.6 bn in January 2020.
At EMFI securities we expect a GDP contraction of 0.7%, mainly driven by the decline in tourism activity, which comes mainly from United States (66% of total).
The World Bank has approved a USD 70 mn loan for budget financing to support the Jamaica's reform program and efforts to strengthen and accelerate recent gains in fiscal consolidation and sustainable growth. The loan has a maturity of 24 years and a grace period of six years.
In line with other monetary authorities globally, and in a bid to pump money into the economy, the central bank of Jamaica (BOJ) has announced a plan to buy Government of Jamaica (GOJ) fixed and variable rate instruments in addition to early redemptions of BOJ instruments. The offer runs until June 30, 2020. The total budget for the operation was not published.
The Government of Jamaica (GOJ) signed an agreement with the Inter-American Development Bank (IDB) on March 13. The Program will be executed under a Conditional Credit Line for Investment Projects (CCLIP) of which a total of USD 50 mn will be provided by the IDB over a ten-year period. The CCLIP comprises two (2) investment loans, each in the amount of USD 25 mn both with five-year terms.
On March 24, the closure of the Budget Debate by the Minister of Finance Nigel Clarke at the House of Representative is scheduled.
Continue ReadingOur EMFI Core Index has fallen 27.6% year-to-date (YTD), while Our EMFI Expanded Index has fallen 19.2%. The last two weeks have been particularly bad, with consecutive 10% declines.
Unsurprisingly, countries heavily reliant on oil have suffered the most. Among our 34-country group, almost every oil-reliant one has fallen more than the 18.3% median.
The second thing that jumps to the eye is that the riskier countries have fared proportionally worse than relatively safer countries, when excluding oil-dependent countries.
We’re also seeing several countries crossing the 10% yield threshold, usually associated with distressed debt, despite remaining current with their obligations and not having officially signaled any impending restructuring processes.
There is a significant compression of the price difference between risky, but performing, countries (such as Ecuador or Angola) and countries that are either in the middle of a preemptive restructuring process (Argentina) or in outright default (Lebanon or Venezuela).
Overall, our view in this regard is that the large declines in EM debt have thrown the market into disorder, creating opportunities for relative value trades.
In this sense, we favor Ecuadorean bonds with high current yields, such as ECUA 10.75 2029 or ECUA 9.625 2027, that offer potentially high interest payments at a low price-differential to defaulted debt.
Continue ReadingThe current crisis will translate into twin demand and supply shocks, with an oil price war on top of it.
The demand shock driven by declines in the world’s main trading partners will particularly affect emerging markets which are characterized by low diversification of exports and production.
Supply chains around the world have been disrupted by factory closures, first in China and now in Europe and the US.
The markets most exposed to a potential slowdown are the major commodity exporters: Venezuela, Ecuador, Angola and the markets most reliant on Chinese and US tourism.
In most EMFI countries the tourism activity represents at least 30% of service exports. Only in Ukraine and Pakistan, the tourism sector accounts for less than 10% of service exports.
Of the EMFI countries, only Angola, Venezuela and Ecuador are net oil exporters.
Net importers would be the biggest beneficiaries of oil prices plunge.
Among the EMFI countries net oil importers, Pakistan would have the greatest positive impact on its current account.
A weak health system is one of the biggest challenges that EMFI countries face to manage the coronavirus pandemic.
Barbados, Jamaica, Angola and Venezuela have the weakest health systems.
Continue ReadingWith a high probability of a recession in the coming months, oil prices would remain at low levels, which would represent an important benefit for El Salvador.
We estimate that the price effect will be combined with a negative effect on imported volume due to the next global recession.
In 2020, the oil bill would drop to USD 822.9 mn, which would represent savings of USD 671 mn compared to the 2019 oil bill.
El Salvador's trade balance is highly dependent on the United States economy.
In a global recession scenario, we believe that Salvadoran goods exports will decrease by USD 435 mn (a drop of -7.3%). We estimate that remittances would fall -3% or USD 166.8 mn.
This means that the drop in the estimated oil bill (671 mn) would be just enough to offset the drop in exports and remittances.
Salvadoran debt peaks are also affected by the coronavirus crisis. Despite having fallen less than other countries, the uncertainty regarding the impact it has on the country's economy and its main commercial ally, is evident in the markets.
The magnitude of the recession in the United States and the possibility of accessing credit from multilaterals, will determine to a large extent the ability to implement Bukele's ambitious plans.
ELSALV 8,625 2029 closed on Thursday at 92.65, recovering 3.5%, after a fall of more than a quarter of its value in the last month. Its YTM remains above 10%, after the February lows.
According to The Associated Press, two people on condition of anonymity confirmed that El Salvador is requesting USD 400 mn from the IMF to fight the coronavirus. This loan would be under the IMF's Rapid Financing Instrument (RFI).
On March 18, President Nayib Bukele confirmed the first case of coronavirus in El Salvador. The patient would have entered El Salvador for a blind spot on the border with Guatemala or Honduras. The Army carries out a sanitary cordon in Metapan (about 112 kilometers from San Salvador), where was the patient.
On March 18, the economy minister announced measures to support those who are affected by the coronavirus. The electric energy, water, telephony, internet, and cable quota is suspended for three months, and the payment of these three months will be divided into two years without generating interest. The collection of mortgage, personal credits and credit cards will be frozen. Additionally, the payment of credit in commercial houses will be suspended for three months.
Continue ReadingSince the beginning of March, GDP-linked warrants have lost a third of its value as a result of President Zelenskiy cabinet reshuffle and the dismissal of a highly regarded prosecutor general.
Ukraine's economic growth has been disappointing since the last quarter of 2019.
According to our estimates, depending on the level of real GDP growth, aggregated payments of GDP-linked warrants could amount from USD 3.6 bn to USD 16.1 bn.
GDP-linked warrants seem to be trading considering a GDP growth around 3% per year, which is our baseline scenario.
Lifting the moratorium on agriculture land sales could boost economic growth on average by 0.7 pp per year over a five-year period.
Political uncertainty and the final impact of the coronavirus outbreak on Ukraine’s economy will be the major risks in 2020.
Ukraine's debt fell by an average of 35% in the last month, mainly affected by the crisis caused by the Coronavirus, although with internal factors that do not help the outlook.
The recent change in the cabinet looks unattractive to the market, due to some figures critical of the relationship with the IMF.
Delays in key land and anti-corruption reforms, lack of agreement with the IMF, and uncertainty about a change of strategy by the new cabinet worry investors.
Yields to maturity are particularly interesting for notes maturing in 2022, 2024 and 2025
On March 3, the Parliament voted to dismiss then Prime Minister Oleksiy Honcharuk and most of his government for poor performance and for appointing foreigners to the state-owned company board. In an extraordinary session, the Parliament also voted to remove Ruslan Ryaboshapka, the prosecutor general appointed in late August 2019.
President Volodymyr Zelenskiy asked his government to hold talks with the IMF to ask for financial support to counteract the effect of the coronavirus. Ukrainian President also asked the government to restrict food exports and outlined measures to restrict the movement of people, including shutting down rail travel and urging people to stay at home. Prime Minister Denys Shmyhal said today that his government is in constant talks with the IMF and he expects a “positive result the soonest.”
The National Bank (NBU) sold USD 130 mn on March 16, in an attempt to stabilize the national currency. Since March 10, the National Bank sold over USD 1 bn of state reserves to stabilize the hryvnia. The panic sell-off of the national currency is happening amid news of a looming economic crisis caused by the COVID-19 pandemic.
Continue ReadingIn December 2019, Brent was trading at USD 65.4 per barrel (bl), however the authorities chose to be conservative and estimated an oil price of 55 USD/bl for 2020.
Brent is currently trading at 30.3 USD/bl and Angola's debt is among the week's worst performers, only behind some countries under financial distress and Ecuador.
Despite the surplus, Angola faces financing needs above 10% of GDP.
In the 2020 Budget, authorities estimated USD 14.1 bn (18.6% of GDP), which could be divided into 9.7% of GDP towards domestic debt and 7.5% of external debt.
It is quite clear that the main problem that Angola will face is to meet this huge amount, given that the fiscal revenues would not be enough.
Due to the uncertainty that will be around for a while, Angola is in a more fragile situation in comparison to several EM countries.
One major concern is a new depreciation, which will increase again the debt-to-GDP ratio.
For this year are scheduled amortizations up to USD 14.9 bn.
Given lower oil prices, financing needs could be even higher and it is not clear how the government will pay the huge amount for amortizations this year, beyond than greater indebtedness.
Angola has been the most affected emerging country that we cover during the crisis due to oil prices and the coronavirus.
Some internal factors such as the slow progress of reforms, the currency risks it faces and a decrease in oil production have added to the sell-off.
ANGOL 8 2029 closed at 60.28 cents per dollar this Tuesday, a 43% drop from 10 days ago, and showed a 863 bps increase in YTM.
On March 16th, the president of Angola, João Lourenço has admitted the possibility of needing to review economic forecasts due to the fall in the oil price and the COVID-19 outbreak. “All the economies of the world, large and small, producers and non-producers of oil are feeling it, and the uncertainty in the future is growing,” noted the president, quoted by the Angop news agency.
Previously, the minister of finance, Vera Daves, said on March 12th in Luanda that it was still “too soon to consider any scenario to review the State Budget for 2020”.
Continue ReadingThe outbreak of the Coronavirus, as well as the “oil price war” between Saudi Arabia and Russia have triggered almost complete certainty that a global recession is coming over the next quarter.
Some economists are expecting a 2-quarter rolling recession, but there is potential for the downturn to extend further if the virus reemerges after activity is unfrozen.
Emerging market debt is taking a beating in 2020 so far. The countries we cover registered a median 14.3% fall year-to-date, with the worst performer doing as bad as 60.3% down (Ecuador) and 38.5% down (Angola).
We compare indicators on 4 major categories: external dependency, financing needs, current account balance and debt stock, in order to asses which countries are better positioned to outperform in an upcoming recession.
Pakistan, Ecuador, the Dominican Republic and Ukraine are the four countries that rank the best in our indicators.
An outside call worthy of consideration is Suriname, which does not perform well in most of our indicators, but has external and fiscal accounts significantly exposed to gold, which may outperform in the coming quarters due to central bank quantitative easing.
Continue ReadingThis Sunday, March 15, despite the panic that exists due to the Covid-19, the extraordinary municipal elections took place.
Elections took place in an atmosphere of calm with a low turnout.
The Citizen’s Participation (Participación Ciudadana) group said it registered claims of vote-buying in 19% of the voting centers.
So far, the electoral board has delivered results for 82 of the 158 municipalities in the country.
With votes still being counted, opposition party PRM is ahead in key major cities, including the two main mayorships of the capital.
Local media is speculating that the ruling party will likely fail to reach 25% of municipalities, which would leave the party in control of just 80 mayoralties (from previous 107).
If all of these municipalities go from PLD to PRM, it would leave the later with a total of 57, a large improvement from the previous 30 it held.
Dominican debt plummeted during the last month affected by internal and external vulnerabilities that worry the market.
The general elections, the tensions over the regional elections, the coronavirus and its expected contractionary effect on the tourism sector are part of the accumulation of events that have affected the country's debt.
DOMREP 6 2028, whose price averaged 110 cents on the dollar at the end of 2019, closed this Monday at 88.93
Continue ReadingIn 2017, Central Bank (CB) implemented a financial engineering plan offering commercial banks appealing schemes to attract foreign currencies.
Under this scheme, deposits with CB grew from USD 89.8 bn in 2016 to USD 155.0 bn (72.7% growth) in October 2019 when current crisis started.
After the implementation of financial engineering, total assets of the Lebanese banking sector grew remarkably, from USD 204.3 bn to USD 262.8 bn.
As banks increased their deposit position with the CB, consumer deposits began to decline, which made the system unsustainable.
On December 2019, banks started offsetting their loans taken from CB in local currency. As result, deposits with the CB decreased by USD 38 bn, accumulating a y-o-y drop of 9%.
As the risk of debt default increased, commercial banks began to get rid of sovereign bonds. From January 2019 to January 2020, banks reduced their ownership of public debt by -18.8%.
According to the balance sheet released by the CB, commercial banks assets fell from USD 262.8 bn in October to USD 213.8 bn in January (a 19% contraction).
Lebanon's debt has plummeted 10% on average this week after the Diab government announced that it would not pay the USD 1.2 bn principal on the LEBAN 6.375 2020 bond, which was due on March 9.
Bonds on the short end of the curve saw harsher movements as the country announced the default. Notes due in 2020 are trading around 25 cents on the dollar.
Expected recovery values for Lebanon appear to fall from the 30% to 20% according to debt prices.
On March 11, Prime Minister announced that Lebanon will ban all travel to and from 11 countries that have witnessed significant outbreaks of the coronavirus, including an immediate ban on Italy, Iran, China and South Korea. Currently, total number of infections rose to 61.
IMF urges Lebanon to implement reforms to stabilize economy. On March 12, IMF spokesman Gerry Rice told reporters: "Given the severity of economic conditions in Lebanon, it's important that the government designs and implements promptly a comprehensive package of reforms to effectively address the economic challenges (…) We stand ready to assist the authorities in those efforts."
A Lebanese national charged with conspiring to export drone parts and technology from the US to the Iranian-backed Hezbollah terror group in Lebanon has pleaded guilty to one count of conspiracy to violate US export laws.
Continue ReadingMonetary aggregates growth has accelerated since the Peronist party won the presidency.
Reducing inflation does not appear to be the main target of Fernández administration.
We expect monetary base growth to exceed M2 growth in the coming months and a further increase in the stock of Leliqs.
Since the beginning of the new cepo, the increase in the parallel exchange rate has exceeded the official one.
Exchange control will remain during this administration, so the gap between the parallel and official exchange rates will continue to increase.
Accommodative fiscal and monetary policy could boost GDP expansion in the short term, but at the expense of increasing the monetary and fiscal imbalances.
Argentine bonds accumulate a drop of 20% on average this week. ARGENT 5.875 2028 is quoted at USD 31.70, while ARGENT 6.875 2021 trades at USD 36.60.
Current prices could become a double-edged sword for the government. On the one hand, the low price could help it offer lower recovery values, favoring the government's strategy, but this would likely be frowned upon by investors and could attract distressed debt funds.
Tomorrow, the Treasury will seek to swap Lecaps due on March 30, March 31 and April 8 and Lecer notes due on March 30. CER bonds will be swap for the remaining AF20 dual bonds. Argentina official said that recent bond sales were well received by foreign investors.
On Wednesday, President Fernández said the deadline for concluding negotiations with bondholders before March 31 can be extended for an additional 30 days. The president also explained that the initial date to end the negotiations was chosen due to a series of maturities, but did not specify which one.
Argentina said on Tuesday that it will seek to restructure USD 68.8 bn in bonds issue in foreign law, the announcement was published in an official decree. Most of the bonds were originally issue by Macri’s administration with different currency denominations. Par and discount bonds, which were already restructured in the 2005 and 2010 exchanges, are among the bonds the government intends to negotiate.
The Argentine government temporarily suspended visa applications for several countries because of the coronavirus outbreak. Among the list of countries are China, South Korea, Iran, Japan, US, UK and the European Union.
Continue ReadingIn a national broadcast last night, President Lenín Moreno announced several economic measures to cope with the economic shock caused by the collapse in oil prices.
At first sight, this package looks pretty ambitious when compared to the cuts that were budgeted originally.
Our fiscal estimates for 2020 take the assumption of a certain resistance to the austerity policies and an oil price of 40.1 USD/bl. The fiscal deficit would be 2.4% of GDP, above the budgeted level.
However, if we make the assumption that the National Assembly will cooperate with the reforms, the deficit goes down to 1.8% of GDP.
For 2020, the amortizations scheduled amount USD 4,517 mn, together with the fiscal deficit projected by EMFI Securities, this would imply financing needs of USD 7,158 mn.
Richard Martínez and Lenín Moreno ensured that there are conversations to get two loans for a total of USD 2.4 bn, with better conditions than those offered by the market.
Together with the financing sources, it looks like Ecuador will comply with amortizations programmed for this year.
Likewise, according to Martínez statements, it appears that it will be a reschedule of the pending payments to China, that account around USD 2.4 bn for this year, which would reduce the financing needs.
We think that despite the headwinds, Ecuador can navigate through 2020 as long as it implements the right policies to bring the promised reforms into reality and China agrees to reschedule the pending payments.
The bonds did not react well to Moreno's declarations on the night of Tuesday. The ECUA 10.75 2022 bond fell 7.63%, while ECUA 9.5 2030 fell 10.43%.
The price of ECUA 10.5 2020 adjusted upwards with two weeks for its due date. On Monday, a precipitous fall in its price alarmed the markets due to the proximity of its maturity.
The spread on the 5-year CDS contract implies a 78% probability of default over the period.
Continue ReadingVenezuela is very likely to have elections this year. However, these will not be presidential, but rather parliamentary.
The parliamentary term expires in January 2021 and the current point of contention is now the election of an arbitrator for a parliamentary election, instead of a presidential one.
During past weeks, the deputies of Parra’s AN and opposition-controlled AN resumed joint work to select the members of the electoral board.
Now, the opposition seems to be backtracking on electoral negotiations and seeking to increase internal pressure by calling antigovernment protest in the coming days.
We expect the Maduro government to move forward with a unilateral electoral process without opposition participation, since it can still employ the artifact of legislative omission
We reaffirm our view that the most likely scenario for 2020 is one in which neither party yields.
Internally, the situation seems to have reached a point of stagnation again, and the greatest political asset of both sides seems to be the support of its international allies, which are the only ones able to tip the balance.
On March 7 part of the main warehouse that stores Venezuela’s voting machines caught fire which destroyed most of the voting machines. Nearly 50,000 voting machines and almost 600 computers went up in flames. Tibisay Lucena, president of the National Electoral Council, request the authorities for a thorough investigation.
Venezuela will sell some of its shares in the CAF Latin American development bank to pay down its debt with the lender. The sale would reduce the bank’s exposure to Venezuela, which reached USD 3.6 bn last year. Guaidó Prosecutor Office published a statement calling the operation a gross violation of the Venezuelan constitution.
On March 5, opposition-controlled National Assembly voided the contracts between PDVSA and Rosneft Trading, where 49.9% of Citgo Holding INC was offered as collateral to the Russian company. Representative Elías Mata said that the contracts violate Article 150 of the Constitution (which establishes that public interest contracts must be approved by the National Assembly).
Platts Analytics forecasts Venezuelan oil output to fall to 550 kbd by the end of this year after US sanctions were imposed, but with less of a priority placed on them in 2021, Venezuelan oil output is forecast to increase to 650 kbd by the end of next year.
Continue ReadingGiven the coronavirus outbreak and the political environment going into the 2021 elections, an optimistic scenario for Moreno’s administration seems very unlikely to materialize.
The Fund projects an increase of 8.6% in revenues in 2020 and a slight reduction of 1.5% in expenditures. The forecasts look unreachable for several reasons.
The remarkable decline in oil prices due to coronavirus outbreak: 2020’s budget projected oil price at 51.3 USD/bl, while WTI currently trades at 32.87 USD/bl.
This brings down our revenues estimations by 7%.
In the second place, there has been no progress regarding the fuel subsidies cuts and the asset monetization program.
This outlook will extend while the coronavirus outbreak keeps expanding globally, causing uncertainty.
If the revenues keep declining, it is not an option for Ecuador to tap the market because of the high yield that a new issuance would require.
For this reason, the authorities have to apply a local measure that could bring either higher revenues (like a VAT rate hike) or a deep cut in expenditures (like the removal of fuel subsidies).
CDS spreads show an average increase of 46% during the last month, although they imply the highest probability of default in a two-year horizon.
The price of ECUA 10.5 2020 showed a 7.15% drop on Monday, just two weeks before the bond’s maturity. Its YTM reached 250 bp yesterday.
On March 4th, Standard & Poor’s chose to keep the Ecuadorian rating at B- with a stable outlook. According to S&P, the stable outlook reflects its assumption of a continuous constructive commitment with the IMF and a continuity of policies amid the presidential elections next year. Meanwhile, the rating agency assumes that the Government will have access to credit options from multilateral organizations and private sources, which will cover financing needs.
On March 5th, the Ecuadorian Statistics Institute announced that February monthly inflation stood at -0.15%, while it represented a decline of -0.23% in y-o-y terms.
In the middle of the current crisis in oil prices, on March 9 José Augusto Briones resigned his position as Minister of Energy, alleging health problems.
Continue ReadingOn February 18, the cabinet approved the draft budget for the fiscal year 2020-2021 (from April 1 to March 31)
In the fiscal year 2020-2021, it is projected that revenues will be 20 bp lower than those of the previous fiscal year, reaching USD 1,571 mn.
The government estimates that the total expenditure for the financial year 2020-2021 will be USD 1,686.3 mn (6.9% more than the previous year).
Despite the deterioration of the fiscal balance, the fiscal deficit presented by the budget is at sustainable levels.
We see positively the increase in capital expenditure and goods and services expenses. We believe that Barbados' main risk is economic stagnation.
EMFI Securities growth forecast for the Barbados economy increased 20 bp over our previous forecast, standing at 0.5%, which implies an acceleration as of 2019 (-0.2%)
BARBADOS 6.5 2029 closed this Thursday at 106.31, a 3.3% increase against the end of January.
The successful restructuring of the country’s external debt has reassured the market, and its terms will help to maintain the public debt in a downward trajectory.
Barbados’ credit ratings have adjusted according to the good moment the country in undergoing.
In February, the Ministry of Energy and Water Resources, Wilfred Abrahams, issued offshore exploration licenses for the Carlisle Bay and Bimshire blocks to BHP Petroleum. “With prudent management, Barbados’ offshore oil and gas sector can offer significant opportunities for the Barbadian people (…) This has been a long time in coming, and the Government is eager for BHP to get started, said Abrahams.”
On February 27, Barbados authorities ruled out the infection by coronavirus of two people aboard the Carnival Fascination cruise ship with symptoms of the disease, so passengers could disembark. So far there are no confirmed cases of COVID-19 in Barbados.
Today, the Barbados-based Caribbean Institute for Meteorology and Hydrology (CIMH) said that there are concerns over short and long term drought by the end of the dry season in May over much of the region. Long term drought is evolving in Antigua, Barbados, northwestern half of Belize, Cayman Islands, parts of coastal and interior Guyana, St Kitts, the Windward Islands – Dominica, Grenada, St. Lucia and St Vincent and the Grenadines.
Continue ReadingTax revenues started to weaken since the 2018 political crisis.
The primary balance turned to a deficit of 0.8% of GDP during the first seven months of 2019
The Easter Sunday attacks in April 2019 slowed down economic growth, and the government increased expenditures to boost the economy.
Central government external debt in the long-term increased 9% to reach USD 35,015 mn in the third quarter of 2019 compared to the same of 2018.
We expect further deterioration in the primary fiscal balance for 2019 and 2020.
The Budget for 2020 is expected to be approved after the new Parliament takes office in May.
Fiscal consolidation and the decrease in the debt-to-GDP ratio seems to be at risk.
Sri Lanka's debt adjusted downwards in recent weeks amid fears that a coronavirus could affect the country's tourism sector.
The SRILAN 7.55 2030 traded at 97.15 cents on Wednesday, a daily advance of 0.10%, after a bad February.
Despite the impact on the country’s debt, the effect was relatively tame compared to other countries covered by the firm.
Inflation accelerated in February, reaching 6.2% y-o-y, from 5.7% in January, as the Central Bank cut interest rates to boost domestic demand. In January, both policy rates (the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) were reduced by 50 basis points to 6.5% and 7.5%, respectively.
The IMF concluded its mission in Sri Lanka on February 7. The Fund said that the country needs to move towards fiscal consolidation to ensure macroeconomic stability following the Sunday Easter Attacks. Currently, the economy is recovering from this event and growth is projected at 2.6% in 2019 and 3.7% in 2020. The recovery is supported by the manufacturing sector and a rebound in tourism arrivals. The Fund expects that the coronavirus will have a limited impact on Sri Lanka’s tourism sector.
On Monday, President Gotabaya Rajapaksa dissolved Parliament and set new elections on April 25. The dissolution comes six months before the parliamentary term was scheduled to end. Mr. Rajapaksa needs the support of two-thirds of parliament to pass changes to the constitution.
Continue ReadingAs March 9 approaches, the market has become increasingly worried that Lebanon will not meet the USD 1.2 bn principal payment on the LEBAN 6.375 2020 bond due on that date.
CDS markets are ominous; under the assumption of a 40% recovery value, the spread on the 6-month contract implies a 93.11% probability of default, which rises to 98.86% for the 1-year contract.
Per Bloomberg, top 5 investors have blocking positions in five bonds: the three 2020 bonds, the 2021 bond and LEBAN 6.1 2022. The concentration of holdings is especially intense in the 2020 bonds.
We think there would be little logic in paying LEBAN 6.375 2020 just to default 36 days later on LEBAN 5.8 2020. As a matter of relative value, we don’t think that the 21.7 pp jump in probability of default implied by their pricing justified.
We consequently like the risk-return profile on LEBAN 5.8 2020, which offers a better profit-loss relation than the March bond, at a low added 36-day additional investment horizon.
We also find the overall probabilities of default implied by both the CDS curve and 2020 bond pricing as too pessimistic. We postulated that this is, at worse, a 50-50 situation, implying that the March and April bonds should be trading closer to the 70 cents on the dollar mark than the 60.4 and 47.5 they are being quoted at.
Continue ReadingAlthough the IMF program carried out a better outlook for fiscal figures, Egypt’s government still has to watch out for other issues.Given that the oil and natural gas sector are the main exporting sectors of the country, Egypt remains exposed to external shocks that would affect the prices of both commodities.
There is an important gap between oil and gas output and domestic consumption, which implies that Egypt relies on imports to cover the demand.The fiscal deficit went from 11% of GDP in FY 2014/2015 to 6.8% in FY 2018/2019. Despite the fact that there is still a long way to go, there’s been a remarkable improvement.
In FY 2018/2019 the deficit was 3.7% of GDP, accompanied by a deficit in the trade balance of 11% of GDP.
The deficit in the current account could increase if the oil and gas prices fall while tourism activity cools.This looks very likely because of the coronavirus outbreak which has already impacted global tourism and oil prices.
EGYPT 7.625 2030 closed on Tuesday at 110.74, a 1.11% correction from the January closing price.The outlook on the country does not seem to have varied significantly, beyond the rise in risk aversion due to the increased global uncertainty.
Egypt held interest rates steady for the second straight month as the virus outbreak in China stoked concerns over global economic growth and inflation accelerated instead of quickened. More than a month after unrest across the Middle East interrupted Egypt’s easing cycle, the central bank on Thursday left the deposit rate at 12.25% and the lending rate at 13.25%. Inflation accelerated for a third consecutive month in January to an annual 7.2%, with the MPC stating that keeping rates unchanged was consistent with its goal of inflation at 9%, plus or minus 3 percentage points, in the fourth quarter “and supporting the disinflation path over the medium-term.” The MPC said it “will not hesitate to resume its easing cycle subject to further moderation of inflationary pressures.”
Egypt’s foreign reserves rose by about $53 million, reaching $45.509 billion by the end of February 2020 according to the Central Bank of Egypt (CBE). The current level of foreign reserves covers about 7.2 months of Egypt's commodity imports, which is higher than the global average of about three months of commodity imports.
IHS Markit Egypt PMI rose to 47.1 in February 2020, up from 46.0 in January, recording the seventh straight month of contraction in the non-oil private sector. Egypt's non-oil private sector remained mired in a downturn in February. Though the PMI improved from January's near three-year low, the latest data continues to show broad-based weakness across output, new orders and employment. The results revealed that output of goods and services across Egypt's non-oil private sector decreased for the seventh month running in February, with the rate of decline likewise easing since the previous survey period but remaining solid by historical standards.
Continue ReadingFebruary was a bad month for EM debt, as the market went into risk-off mode pushing bonds to backtrack on the gains made over the previous two months. 11 out of the 15 countries in our EMFI Core Index fell on the month, while the weighted index itself fell 5.8%, retracing below December levels.
Our Expanded Index ex. Core confirms February’s sell-off, registering declines in 21 out of 25 countries and an aggregated fall of 0.9%. Nonetheless, this fall is significantly below that of our EMFI Core Index.
Our selection of countries is clearly biased towards some large and risky high-yielders, which translates to an expectable gap between the EMFI Core Index and the EMFI Expanded ex. Core Index. Nonetheless, the gap significantly widened in August 2019, as Argentina saw a sharp sell-off, and further widened in recent months.
From a pure relative value perspective (which does not incorporate any assessment as to the fundamentals of the credits), 5 countries look cheap (Argentina, Ecuador, Lebanon, Iraq and Tajikistan), while 5 countries look rich (Barbados, Pakistan, Gabon, Maldives and Venezuela) against their 6-month moving averages. Overall, our EMFI Core Index looks cheap and we are neutral to our EMFI Expanded Index ex. Core.
Continue ReadingOn May 25, parliamentary elections will take place in the country. In Suriname the National Assembly elects the president (34 of 51 votes are needed).
The latest poll indicates that 77.2% of respondents felt that the current economic situation is worse than 12 months ago.
When asked what grade voters would give the Bouterse government between 2015 and 2020, respondents answer with a rating average of 4.6 of 10
Survey results show NDP and VHP, the main opposition party, would obtain 4 seats each, of the 17 seats corresponding to Paramaribo.
In Paramaribo, NPS would get two seats and ABOP only one and there would be 6 seats left to assign that would depend on the vote of the undecided
EMFI securities scenario indicates the NDP would get 21 seats, the VHP 16, the NPS 7, ABOP 6 and some of the minority parties would get 1 deputy
The election results would reflect the loss of popular support for the official party compared with 2015 elections
If the scenario we expect in EMFI Securities materializes, we believe that Bouterse would be reelected as president
SURINM 9.25 2026 closed this Thursday at USD 86.52, just 1.9% above the end of January. The lateralization in its price occurs after the increase in more than 20% during the months of January and December.
The expectations that oil explorations by US Apache Corp will result in a significant increase to oil and gas production remain on the horizon.
Apache Corp. is drilling its second exploration well on block 58 offshore Suriname, following its large Maka Central oil discovery in January 7. "Apache is encouraged with the first results," the company writes in its publication.
Commander Faried Ilahibaks denied rumors that a Russian helicopter in Suriname would be used to commit helicopter fraud during general elections. The Russian helicopter deployed by the National Army is only intended to transport material to interior areas that cannot be reached by road or by water, the commander explained.
On February 26, judicial authorities in the United States rejected a request from the Suriname government to allow Dino Bouterse (son of Desi Bouterse) to serve his sentence in Suriname. The president's son was sentenced by a New York court in March 2015 to sixteen years and three months in prison.
Continue ReadingSince FY 2016-17, Pakistan has consistently missed its tax revenue target.
Tax collection dropped 0.4% in FY 2018-19, driven by direct taxes and sales taxes decrease.
Pakistan is heavily dependent on indirect taxes, specifically on sales taxes.
Consolidated tax collection slightly improved 0.2 pp to reach 5.6% of GDP in the first half of FY:2019-20.
Provincial taxation remained weak, while federal collection recorded a robust growth.
We believe that the government will not be able to substantially improve consolidated tax revenues in the medium term.
Although the current government is taking measures to reduce tax evasion, it has encountered resistance from the commercial sector in the economy.
The PKSTAN 6,875 2027 remains around its historical highs when closing on Wednesday at USD 107.91
The entry of loans from Saudi Arabia, the United Arab Emirates and the IMF is good news in the short term, but they raise the possibility of future problems due to the high exposure of foreign currency debt.
On Wednesday, Pakistan confirmed its first two cases of coronavirus. “The patients travelled to Iran where they acquired the virus”, said Meeran Yousuf, the Coordinator to the Health and Population Welfare Minister of Sindh government. Pakistan has closed its border with Iran on Sunday to prevent the coronavirus from spreading to its territory.
An IMF mission visited Islamabad during February 3-13, to initiate discussions on the second review of the Extended Fund Facility (EFF) agreement. On February 14, IMF authorities said that Pakistan has made considerable progress in the last few months in advancing reforms and continuing with sound economic policies.
On February 21, Financial Act Task Force (FATF) decided to continue Pakistan in the “Grey List” and warned the country that if it fails to check flow of money to terror groups by June, it could lead to consequences in its businesses. Pakistan needs 12 votes out of 39 to exit the “Grey List” and move to the “White List”.
Continue ReadingThis report is divided into three large thematic blocks: sections 1 to 4 deal with the general economic and political environment in the country, sections 5 to 7 deal with external debt and assets, and sections 8 to 10 deal with the future restructuring of the Venezuelan debt.
Section 1 – Oil Production, deals with our interpretation of the impact of sanctions on the local industry, and the ways in which the Maduro government evades them.
Section 2 – Fiscal Accounts and Inflation, describes the evolution of inflationary trends, monetary financing and the government’s fiscal deficit.
Section 3 – The Political Setting, delves into the heated political conflict, the interactions of key actors with their electorates, and the puzzling coexistence of two parallel governments.
Section 4 – Geopolitics and Sanctions, navigates the often-ambiguous waters of international relations, as well as options left on the table to increase pressure on Maduro.
Section 5 – External Assets, shows our estimate of the value of the country’s scant liquid and non-liquid assets abroad.
Section 6 – External Debt, traces the ever-growing stock of debt accumulated by the country, and who it is owed to.
Section 7 – Potential Financing, presents rough estimates of the size of the potential financial support package that a future Venezuelan government can expect.
Section 8 – Bond Description, goes into the fine print in Venezuelan debt contracts, identifying key provisions that may impact the outcome of a restructuring process.
Sections 9 – Restructuring Ideas, reviews scholarly and practitioner proposals for addressing the question of holdout behavior and how to renegotiate the country’s debt.
Section 10 – Bond Selection, sums up the conclusions from the previous sections and provides our chosen positioning for an eventual Venezuelan restructuring.
Continue ReadingSeveral analysts suggest that Bolivia's good economic performance is subject to natural gas exports to other countries in the region, among which Brazil and Argentina stand out, and will soon increase hydrocarbon shipments to Peru. However, the outlook for Bolivian gas could be about to change.
The contracts with the main clients of Bolivia, Brazil and Argentina, are being renegotiated at a time when both have promised to increase their own production, and also enjoy extensive coastline that allow them to access a growing global market that demands liquefied natural gas.
The turmoil comes at a time when Bolivia's public debt has reached record levels as we mentioned previously, and the October elections are pressuring the president, Evo Morales, a senior leader in South America.
Through the latest ECLAC report, the sustained increase in gross external debt can be verified: in 2013 the debt amounted to USD 8,078 million, while for the period mentioned in 2018 it was already located at USD 12,799 million, an increase of 58%. While Chile raised its debt by 24% in the same period of time.
Continue ReadingPanama and the People's Republic of China established diplomatic relations on June 12, 2017. To date, both countries have signed more than 40 agreements focused on health, education, culture, science, technology and others.
The fifth round of FTA negotiations could take place in March, as indicated by the Minister of Commerce and Industries, Néstor González. He also said that the negotiations will take the time that will be necessary because of the transparent way in which the agreements are taking place.
Given the level of its exports, it is convenient for Panama to have the Asian country as a new recipient of its products. Similarly, China is also interested in boosting its international trade, after recording the largest drop in its exports in two years.
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