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Global

May 30, 2020

SURINM 9 7/8 12/30/23 Price

SURINM 9 1/4 10/26/26 Price

Strategy Viewpoint: Dissecting Suriname’s Debt

Suriname's debt has increased rapidly and its weight on GDP could hit 104% by the end of the year.

If the opposition takes power, the new government could seek restructuring the country’s debt.

Multilateral loans account for 15,9%% of the total stock, while bilateral debt is 13,1%, commercial loans 21,1%, bonds 25,9% and domestic debt 24%.

The new government could choose to tackle bilateral and domestic debt without affecting bonded debt.

Suriname

May 28, 2020

SURINM 9 1/4 10/26/26 Price

Country Report: Bouterse Down (but Not Out?) After Electoral Defeat

Current president Desi Bouterse's National Democratic Party (NDP) got 16 seats out of 51 with 24% of the vote.

If the opposition forms a coalition between VHP, NPS, PL and ABOP, it would get 33 votes. It still would not be enough for a president to be elected.

If the MPs fail to reach an agreement within the National Assembly, the election goes to the Popular Assembly. Taking party-votes into account the opposition would reach 671 votes, much more than the 468 required to elect a president.

Considering Bouterse’s history (he led an authoritarian government after a military coup in the ’80s), and with the threat of going to jail if he loses power, we cannot rule out a scenario of fraud or of taking power by force.

Prices are already at default levels, which means there isn’t much room to go down and there is plenty to go up.Prices are already at default levels, which means there isn’t much room to go down and there is plenty to go up.

News Highlights

Bouterse has officially announced protest. He’s going to request a national vote recount.

Opposition denounces that there have been many irregularities in the counting of votes. Political observers in the national counting room discovered that voting boxes were removed.

Chan Santokhi, leader of VHP, calls on the government to accept defeat and give it space to begin the transition.

The electoral Observation Mission of the Organization of American States has extended its stay in Suriname

Costa Rica

May 27, 2020

COSTAR 4 3/8 04/30/25 Price

COSTAR 6 1/8 02/19/31 Price

Strategy Viewpoint: The Balancing Act

Costa Rican bonds will garner lots of attention with high yields and coupons, but is it too good to be true?

We assess the bonds’ local and external segments for foreign investors and find some surprises.

We believe a good short-term bet includes both external and local bonds, with a big share of the latter.

Following 2021, the outlook turns darker (we just do not know how much) and warning signs should not be ignored henceforth.

The economic results of 2020 and 2021 will tell if an internal debt restructuring is avoidable in the medium, or even the short term.

Pakistan

May 27, 2020

PKSTAN 5 5/8 12/05/22 Price

PKSTAN 6 7/8 12/05/27 Price

Country Report: COVID-19 Causes an Unprecedented Economic Shock

For the first time in 68 years, GDP will contract 0.38% in FY2020.

Imports reduction and remittance growth have improved the current account deficit in 3Q of FY2020.

Central Bank's profit transfers improved public finances during in 3Q of FY2020.

Oil imports drop could temporarily break the twin deficit relation in 2020.

Bonds recovered over the past 30 days, but remain 14.1% down. We expect some further recovery, but not full retracement.

News Highlights

World Bank approved a USD 500 mn loan for Pakistan to support the health system and social safety nets.

At least 66 people have been confirmed dead in the Pakistan International Airlines (PIA) plane crash on May 22.

At least 61 districts of Pakistan are under the locust attack, raising fears of a food security crisis in the middle of the coronavirus pandemic.

Dominican Republic

May 26, 2020

DOMREP 6 07/19/28 Price

DOMREP 6 1/2 02/15/48 Price

Country Report: What Kind of Economy will the New President Find?

According to preliminary data from the Central Bank, the GDP registered a 0% yoy variation in 1Q20, down from 5.8% in 4Q19.

We expect to see further declines in the months to come. This outlook led us to adjust our GDP forecast downwards from a 0.5% to a 2.5% contraction.

The new president will have to face a health crisis and the economic slowdown generated by the COVID-19 pandemic, combined with a complicated political outlook.

We believe there is room for further tightening in bond spreads if markets regularize. We suggest long-end, low coupon bonds to profit from yield compression.

News Highlights

Until May 25, Dominican Republic has 15,073 Covid-19 confirmed cases, with a case fatality rate of 3.2%.

The IMF projected that the pandemic will cost Dominican Republic USD 6.0 bn in exports, remittances and tourism losses, which are the largest sources of foreign exchange for the country.

Temporary government stimulus programs to support families and help finance companies will total USD 1 bn by June 30, Finance Minister Donald Guerrero said.

Angola

May 26, 2020

ANGOL 8 1/4 05/09/28 Price

ANGOL 8 11/26/29 Price

Country Report: No Margin of Maneuver to Face the Country’s Debt Problems

Total domestic debt stock amounted to USD 22.9 bn, and external debt stock stood at USD 50.1 bn in 4Q 2019. Total public debt stock reached USD 73 bn, 86.2% of GDP

The authorities will likely tap the Eurobonds’ market in the next weeks, thanks to more favorable conditions due to the rebound in oil prices.

While China is the main external creditor, commercial banks rule in the domestic market. Angola would like to restructure its the Chinese debt, however, rumor has it that China is upset with Angola for approaching the U.S.

Pending payments for this year amount to USD 4.8 bn in domestic bonds.

An agreement with China for a debt standstill could trigger enough yield compression for Angola to access bond markets.

News Highlights

On May 21, the National Assembly approved a tax reform, specifically targetting the income tax, which modifies the minimum income to pay taxes but increasing the amount that taxpayers with higher incomes have to pay.

The same day, OPEC refused to grant an exception to Angola, Nigeria and Iraq regarding the oil production cuts.

Between May and June Angola is under the obligation to reduce by 23% its oil production and an additional 18% between June and December.

Argentina

May 25, 2020

ARGENT 5 7/8 01/11/28 Price

ARGENT 6 7/8 01/11/48 Price

Trade Idea: Is There an Opportunity in Argentine Bonds?

Argentina officially entered into default after failing to service USD 503 mn of interest payments.

After having its first proposal widely rejected by bondholders, the government continues to maintain dialogue with bondholders, who presented counteroffers.

We think actual prices include high probabilities of a deal materializing in the short term.

In our view, going long Argentine bonds at current prices with only a deal in sight does not justify the risk.

An investment thesis with a longer horizon that contemplates a post-restructuring scenario could support selective long positions.

Global

May 22, 2020

ARGENT 5 7/8 01/11/28 Price

ARGENT 6 7/8 01/11/48 Price

Strategy Viewpoint: How Ugly can a Haircut get?

As of May 22, 8 countries have at least one USD-denominated sovereign bond trading below 50 cents on the dollar.

The Covid-19 crisis could lead to a new wave of sovereign defaults from prolonged confinements.

We discuss the worst debt restructuring events so far this century.

Argentina 2005 remains at the forefront of these events if we exclude the exceptional cases of countries at war or leaving them.

The countries with the most compromised solvencies that could generate problems with their debt are Angola and somewhat behind, Sri Lanka, El Salvador, Egypt and Pakistan.

Suriname

May 21, 2020

SURINM 9 1/4 10/26/26 Price

Bouterse: Between Scandals and Reelection

The President has had to face several scandals in recent months: corruption allegations, tensions between the government and the private sector have increased.

There has been electoral irregularities, the opposition parties reported that the list of voters included people who had died or did not belong to the indicated address

Opposition parties have also accused Bouterse of benefiting his party during the mandatory quarantine.

In our updated scenario, NDP would get 20 seats, VHP, 17, ABOP, 7, NPS 4 and PL 3. However, we see with medium probability that irregularities will increase on the Election Day and Bouterse widens his lead and win the two-thirds in the Assembly.

At current levels, which are already pricing in a default, the bond’s 30.7% current yield and significant room to recover look attractive.

News Highlights

Bouterse has approved a resolution in which the president of the electoral table can suspend the count of the votes cast in the context of Covid-19

The partial lockdown will be temporarily suspended on May 24 and 25.

Exxon Buys 50% Stake in Suriname Oil Block From Petronas

Opposition parties denounce that resolution passed by Bouterse violates the electoral law

Sri Lanka

May 20, 2020

SRILAN 6 3/4 04/18/28 Price

SRILAN 7.55 03/28/30 Price

Country Report: External Sector Weaknesses Exposed

With the current potential financing sources, we estimate that Sri Lanka will cover just 43% of its financing needs.

The trade deficit widened in February due to higher imports.

High uncertainty about another COVID-19 outbreak could compromise the tourism sector recovery.

Solvency and liquidity indicators look bad across the board, and we find even the 2020 bond unattractive at current prices.

News Highlights

Standard and Poor’s has downgraded Sri Lanka’s sovereign rating to “B-“, as fiscal deterioration raise doubts about debt repayment capacity.

The partial lockdown remains: 23 districts still have night curfew.

Election Commission told the Supreme Court that Parliamentary elections cannot be held on June 20, which delays the approval of a new budget for 2020.

Global

May 20, 2020

ARGENT 5 7/8 01/11/28 Price

Quantitative Insights: Growth Forecasts in Times of Coronavirus

A pandemic year was on the cards, the dramatic magnitude of its effects was not.

The global economy is expected to shrink by 3% in 2020, but leading indicators are pointing to a deeper downturn.

Emerging countries with a history of volatile economic growth will show the worst results.

Some economies may experience a period of above-trend growth during the recovery, although the level of GDP will remain, in most cases, below the pre-virus level.

Ecuador

May 19, 2020

ECUA 7 7/8 01/23/28 Price

Country Report: Another Covid-19 Symptom: Hallucinations with Correísmo Coming Back

The national tragedy, triggered by the coronavirus, looks like the perfect chance for the opposition to win space in this electoral run, as they point out the weaknesses of Moreno’s administration.

With the approval of the Humanitarian Aid Law, it looks like the ruling party (AP) still counts with CREO votes and some votes from the multi-alliance minor parties.

However, several assembly members from that multi-alliance minor parties migrated to the anti-Lenín position, joining correísmo and PSC, harming the support to Moreno within the National Assembly.

Executive Secretary from Correa’s party, Virgilio Hernández, ensured that they will propose candidates for the 2021 elections by saying that there is no reason for them to be unable them to participate.

According to the electoral body of Ecuador, the political parties have to hold internal elections between August 9 and 23; and the candidates’ registration will be between September 18 and October 7.

At current prices between 34 and 41 we believe there still is upside potential on Ecuador's debt, but risk of policy reversal clouds the outlook.

News Highlights

Lenín Moreno announced a new package of economic measures that would bring a USD 4 bn cut in expenditures: USD 980 mn from the wage bill, USD 400 mn in purchases of goods and services, USD 1.3 bn in capital expenditure and USD 1.3 bn from debt restructuration.

Likewise, there is a relative lift of the oil subsidies with the fuel prices traded at international prices. However, Moreno ensured that in the case of a new hike in oil prices there will be mechanisms to manage the rise.

This measures are related to the estimation of a USD 12 bn revenues fall for 2020.

Global

May 18, 2020

ARGENT 5 7/8 01/11/28 Price

ARGENT 6 7/8 01/11/48 Price

Special Report: EMFI countries are in a tight-rope walk

Pakistan is the weakest among the EMFI Countries, in terms of the spread of the virus. Lebanon, Sri Lanka and Barbados are the strongest, with a controlled increase rate and a persistent lockdown.

The countries that we evaluate with the worst economic performance year-to-date are Angola, Venezuela, Lebanon, Barbados, El Salvador, Ecuador, Sri Lanka, Argentina and Suriname.

Since the end of 2019, the local currency has depreciated -70.5% in Venezuela, -52.4% in Lebanon, -43.5% in Argentina and -40% in Suriname.

El Salvador and Argentina launched the most ambitious fiscal program among our sample, which will cost 6% and 5.6% of GDP, respectively.

Argentina, Pakistan, Egypt and Turkey launched fiscal stimulus plans beyond their fiscal capacity.

We estimate EMFI countries will lose 10.9% of its GDP as a consequence of the pandemic.

While the all over the world economies restart the engines halfway, the latent risks of social instability remain, as well as the threat of second wave of the virus.

Venezuela

May 18, 2020

VENZ 9 1/4 09/15/27 Price

VENZ 7 03/31/38 Price

Flash Note: Only a License Stands between Citgo and Creditors

Today, the US Supreme Court rejected the request made by the Guaidó-appointed Special Prosecutor's office to overturn the Third Circuit Court decision that allows Crystallex to seize Citgo Holding shares.

The political arguments outlined in the appeal were based on the idea that the decision to allow Crystallex to seize the Citgo shares would go against US foreign policy interests

The move could be seen as a Hail Mary by the Guaidó-administration, which hoped that the SCOTUS and the US Executive would prioritize foreign relations. Nonetheless, the pass failed miserably.

The Trump administration remains on Guaidó’s side and Citgo is still protected against attachment from Crystallex, PDVSA 2020 bondholders or any other creditor.

We don’t expect the recent events to do much to change Guaidó-administration rigid position on debt negotiations but there seems to be plenty of time for the interim government to reconsider.

Costa Rica

May 18, 2020

COSTAR 4 3/8 04/30/25 Price

COSTAR 6 1/8 02/19/31 Price

Country Report: Enduring the Worst, Hoping for the Best

After the fiscal rule fiasco in 2019, the 1Q20 figures looked promising, but then the COVID-19 came and clouded the outlook

We updated our fiscal deficit estimate from 8.3% of GDP in April to 9.6% of GDP, due to higher expenditures and a downward adjust in GDP

GDP could contract 4%, a slightly worse result than the official estimate of -3.6%, mainly driven by the performance of the key tourism industry

Despite the harsh prospects for economic figures, the government has moved quickly to close the financing gap that we estimate at 15.3% of GDP

Recurrently high fiscal deficits and a high debt-to-GDP ratio translates to solvency concerns, which makes us label this credit a SELL.

News Highlights

The Central Bank approved last month the purchase of up to CRC 250 bn in Treasury securities in the secondary market.

Fitch downgraded the country’s credit rating one notch to “B”, with a negative outlook.

Costa Rica has been formally invited to the OECD. This adds pressure to the government to implement further controls over the fiscal accounts.

Global

May 16, 2020

ARGENT 5 7/8 01/11/28 Price

ARGENT 6 7/8 01/11/48 Price

Strategy Viewpoint: Not all EMs are Created Equal

The safest rung of EM hard-currency sovereign bonds fell on March but has already retraced all their losses.

Mid-quality EMs plunged over March and have risen somehow since, but haven’t fully recovered.

This segment has seen a 320 bps rise in average yield in 2020, going from an average 6.1% yield to 9.3%.

We believe high-yield bonds in our mid-quality group have significant upside if they avert a credit event.

After a dry March, markets are again open for fresh bonds, but only from relatively high-quality issuers.

Argentina

May 14, 2020

ARGENT 5 7/8 01/11/28 Price

ARGENT 6 7/8 01/11/48 Price

Flash Note: There is room for improvement

Argentina extends deadline for debt restructuring deal until May 22.

Alberto Fernandez and Martin Guzmán have invited bondholders to present counteroffers and suggest ammendments.

An increase in coupons, principal haircut ammendments, and payment in the first 3 years can increase the new bonds net present values substantially.

Buenos Aires Province has missed its last debt service and has also extended its deadline for debt deal until May 26.

We expect to see the province coordinating with the sovereign, and make similar ammendments to its initial offer.

El Salvador

May 14, 2020

ELSALV 8 5/8 02/28/29 Price

ELSALV 7 5/8 02/01/41 Price

Lives Vs. the Economy: Bukele’s Decision

The Legislative Assembly approved the issuance of debt for USD 3 bn to fight against the coronavirus outbreak.

In total, 1,050 mn will be spent on direct cash transfers or wage subsidies, more than a third of the approved financing.

Choosing between saving lives or the economy, Bukele chose “saving lives”. The cost is a -9.7% fiscal deficit, which will be largely generated by current spending.

El Salvador's bond curve remains deeply inverted as solvency metrics deteriorate significantly.

News Highlitghs

Protest against Bukele government over tightening of quarantine

The five academics and businessmen representing civil society resigned on the audit committee to fight the coronavirus

Homicides have fallen 59% so far in 2020

Ukraine

May 13, 2020

UKRAIN 8.994 02/01/24 Price

UKRAIN 9 3/4 11/01/28 Price

Country Report: The IMF Comes to the Rescue

The new Banking Law was approved today, bringing fresh money to cover the financing needs.

The new IMF deal will be for less money and have a shorter time frame but without structural reforms.

Financial assistance from the international community and the IMF would close the financing gap this year.

Industrial, agriculture and construction production indices started showing signs of economic contraction.

Ucranian bonds reacted positively to the announcement of the IMF deal

News Highlights

The Parliament finally adopted the long-suffering banking law nearly six months after negotiations with the IMF started.

The IMF will have 2-3 weeks to communicate its final decision regarding the SBA agreement, but this is a mere formality.

Quarantine could last beyond May, and air transport would return by mid-summer.

Venezuela

May 12, 2020

VENZ 9 1/4 09/15/27 Price

VENZ 7 03/31/38 Price

Flash Note: Theatre of the Absurd

The press uncovered the involvement of the Juan Guaidó interim government in a poorly-planned maritime incursion to overthrow Maduro.

The failed incursion damages the interim government’s claim to constitutionality, on which international recognition is based.

Alejandro Grisanti, member of PDVSA ad hoc board, resigned from his position last week.

Grisanti's resignation represents the weakening of the fraction within the interim government that advocates for a negotiated solution with the bondholders.

Egypt

May 12, 2020

EGYPT 6.2004 03/01/24 Price

EGYPT 7 5/8 11/10/30 Price

Country Report: Coronavirus Blows a Hole in Egypt's Budget

Budget for FY 2020/21 (starting on July 1) was drafted in an early stage of the outbreak, it is likely to underestimate the fiscal effects of the pandemic.

Fiscal deficit stood at 8.1% of GDP in FY 2018/19, but the outlook for the current fiscal year is disastrous.

For the last months of FY 2019/20 there will be lower tax revenues and scaled-up spending, our preliminary estimates suggest that the deficit will climb up to 8.4% of GDP and a slight primary deficit of 1.5% of GDP.

We expect a balance between social spending for the health and education sector together with greater cuts in other subsidies for the FY 2020/21, as the official estimates aim for a primary deficit of 0.6% of GDP and a fiscal deficit of 7.8% if the crisis persists until December.

Despite the deterioration in its fiscal figures, Egyptian debt is holding up better than its emerging peers. In the last month, bonds have risen over 5%.

News Highlights

Mohammed Ma’it, finance minister, declared that official estimates aims to a GDP growth of 4.2% for FY 2019/20 and coronavirus crisis led to an increase in the public debt by 3% of GDP.

On Monday, Moody’s affirmed the long-term foreign and local currency issuer ratings of the Government of Egypt at B2, and kept the outlook stable.

President Abdel-Fattah al-Sisi approved on Monday a new law to add EGP 10 bn (USD 635 mn) to the state budget for the current fiscal year.

Global

May 08, 2020

ARGENT 4 5/8 01/11/23 Price

ARGENT 6 5/8 07/06/28 Price

Strategy Viewpoint: The Beginning of the End or the End of the Beginning

US stocks rose 12.7% in April, while US investment grade bonds rose 4.6% and EM bonds 4.0%.

Our EMFI Core Index fell 0.9% over the month and is 27.1% down YTD.

The best performers of April were Egypt (+4.7%), Sri Lanka (+4.0%) and Turkey (+3.8%).

The worst performers were Suriname (-26.9%), Lebanon (-14.0%) and El Salvador (-11.3%).

The IMF has approved just over USD 16.0 bn for 61 countries.

Of the 16 countries we follow, 6 have already been granted financing for a combined USD 3.5 bn.

Lebanon and Argentina presented restructuring proposals asking for large debt relief but not offering much adjustment.

Lebanon

May 07, 2020

LEBAN 6.65 11/03/28 Price

LEBAN 6.65 02/26/30 Price

Country Report: Introducing the Non-Recovery Plan

The government's economic plan calls for an L-shaped recovery.

The biggest change in the economic plan is the devaluation of the exchange rate from 1507.5 LBP/USD to 3500 LBP/USD.

The fiscal result in 2024 would be worse than in 2019, the pre-crisis phase.

According recent cases, the IMF could lend exceptional financing of USD 7.8 bn.

First indications of the restructuring proposal that the government could present to bondholders.

News Highlights

IMF delegation will begin talks with Lebanese authorities next week

Lebanese Private sector and Bank Association are against the economic recovery plan

The government would implement price controls to curb inflation

Argentina

May 06, 2020

ARGENT 6 7/8 01/26/27 Price

ARGENT 5 1/4 01/15/28 Price

Country Report: You Can’t Teach an Old Dog New Tricks

The fiscal stimulus package has been fully financed with monetary issuance in March.

We may see an inflation acceleration in the second half of 2020 once the lockdown is lifted.

The spread between the FX rates soared reaching 2011-2015 highs.

The higher spread of FX rates raises expectations of a new devaluation.

News Highlights

Argentina is in talks with the Paris Club to postpone the USD 2.1 bn payment that was due on May 5.

The government said that "The Paris Club has been receptive and the process to reschedule the debt is ongoing."

After being reprofiled in 2019 and in early-2020, the government finally announced a voluntary exchange of Letes in USD for bonds in ARS adjusted by inflation on May 4.

A group of creditors rejected the Province of Buenos Aires (PBA) debt restructuring proposal, arguing it was completely unilateral and contains coercive elements.

Turkey

May 05, 2020

TURKEY 6 1/8 10/24/28 Price

TURKEY 5 3/4 05/11/47 Price

Country Report: Stepping on the Pedal and Ignoring Stop Signs

Turkey faces a combination of high external debt, an inability so far to secure a foreign funding source and the rising costs caused by a semi-halted economy.

Additionally, the pace of the Central Bank’s reserve burn has accelerated in response to the Turkish lira weakness, in an environment with a high aversion to risk.

The last time gross reserves reported a slight rise was in the last week of February. It’s been a constant decline since then, and over the last 6 weeks they’ve decreased 30.3%, with reserves currently amounting to USD 53.9 bn.

According to central bank data, state banks have sold nearly USD 20 bn in interventions this year through mid-April. The local currency has depreciated 13.8% so far this year.

For the rest of 2020, Turkey has pending domestic debt payments of up to USD 25.9 bn, together with gross external debt payments amounts of up to USD 93.7 bn, according to Finance Ministry’s data.

However, short-term external debt stock stood at USD 122.4 bn in February

We believe that the central bank will likely introduce capital controls. Additionally, we do not discard a rate hike if the outlook complicates even more.

We estimate that the Turkish economy contracts by 3.7% in 2020, the first annual drop in real GDP since the Global Financial Crisis.

El Salvador

May 05, 2020

ELSALV 8 5/8 02/28/29 Price

ELSALV 7 5/8 02/01/41 Price

Flash Note: National Assembly approved more debt issuance

The National Assembly approved the issuance of USD 1,000 mn to support small and medium-sized businesses affected by the COVID-19 pandemic.

The Assembly also established that if the financing is made through the issuance of securities, the government must state a minimum maturity of 40 years and could be amortized in periodic payments.

With this new issue, the National Assembly has approved USD 3,000 mn (35.4% of the current budget or 11.2% of our GDP forecast for 2020) in additional financing due to the coronavirus outbreak.

Global

May 02, 2020

ARGENT 5 7/8 01/11/28 Price

ARGENT 6 7/8 01/11/48 Price

Strategy Viewpoint: Distress in Perspective

We identified 23 countries that have at least one bond yielding above 10%, a threshold usually associated with sovereign distress.

Among the most distressed credits, first-time defaulter Lebanon is trading between 16.3 and 18.3 cents on the dollar, on account of slow progress on a reform plan.

Argentina’s debt goes in a range of 23.2 to 34.6 cents on the dollar, days after the Fernández administration’s aggressive mid-April proposal to bondholders was publicly rejected by 3 creditor groups.

Ecuador trades between 28.8 and 33.6, after negotiating a coupon standstill that will give the country until August to think things through.

We like the improving premium of Ecuador over Argentina, which had gone negative during March and April, but has since recovered. We think the Moreno administration market friendly approach justifies a growing premium over Argentina’s antagonistic attitude towards creditors.

We also think that Suriname’s light pending debt service schedule on bonds for 2020, which barely reaches USD 65 mn, is a key strength worth looking at.

We also review net present value haircuts in scholarly research and find that these have risen from around 25% in the early 80’s to almost 60% by 2013.

Latin America and the Caribbean, despite a more checkered history of restructuring since year 2000, registered a significantly lower average net present value haircut than other regions. However, Argentina imposed a 78.8% market haircut to its creditors in their past exchange, significantly above the regions average.

Dominican Republic

April 30, 2020

DOMREP 6 07/19/28 Price

DOMREP 6 1/2 02/15/48 Price

Flash Note: IMF Approves USD 650 mn in Emergency Assistance

The IMF Executive Board approved the Dominican Republic’s request for emergency financial assistance under the Rapid Financing Instrument (RFI).

So far, with the approval of the RFI plus a USD 150 mn World Bank loan, we estimate that the government has covered 53.4% of its USD 6.4 bn gross financing needs.

We expect the government to primarily rely on domestic market funding to cover the remaining amount of USD 2.9 bn.

The latest report from the Health Ministry, as of April 29, indicates a reduction in the average increase of new cases during the last week but it is not yet possible to say that the pandemic is contained.

Dominican Republic is one of the few countries in the region with strong growth rate, fiscal space and access to financing to address the crisis.

Public Debt to GDP ratio closed 2019 at 40.4% and grew to 41.8% in February of this year, which is a very manageable level for an emerging economy.

The country faces concentrated debt service payments in May, July and January, however, we do not expect problems with debt solvency in the short to medium term.

Barbados

April 30, 2020

BARBAD 6 1/2 10/01/29 Price

BARBAD 6 1/2 02/01/21 Price

Country Report: Coronavirus could have fatally injured fiscal sustainability plans

A Pandemic Solidarity Bond in local currency will be issued to provide cash for the National Insurance Scheme. Initially, the government intends to raise BBD 210 mn (USD 105 mn)

Considering the new issue and our estimate of nominal GDP, USD 5,044 mn, Barbados' debt-to-GDP ratio would reach 129.5% from 118.8% in 2019 or USD 6.4 bn at the end of 2020

Due to the coronavirus crisis, the Government of Barbados would obtain a primary deficit of -2.7% of GDP, while the overall balance would reach -6.2% of GDP in FY 2020/2021.

In total, principal payments during FY 2020/21 amounts USD 258 mn (5.1% of GDP).

Assuming loans for USD 278 mn with multilaterals and issuing a Pandemic Solidarity Bond for USD 105 mn. The government still has a financing gap of USD 190 mn to cover.

Barbados' debt is the second with the lowest decline among EMFI countries after the risk aversion crisis began.

Payments on Eurobonds for the next 12 months represent just 4.7% of the country's foreign exchange reserves.

However, the Caribbean country will necessarily require the support of multilateral organizations to mitigate the fiscal impact of the measures addressing the COVID-19 pandemic.

The authorities have expressed the will to fulfill their commitments with the holders of Eurobonds.

The BARBAD 6.5 2029 closed Thursday at USD 87.68, with a peak YTM at 8.4%.

News Highlights

The Central Bank of Barbados projects the economy to contract 8% in 2020. In his quarterly review, the Director of the Central Bank stated that the global impact of the coronavirus outbreak could cause the Barbados economy to even show a double-digit decline.

Barbados completed the EFF's third review with the IMF. The IMF Staff approved the disbursement of USD 140 mn in June, USD 44 mn additional to what was originally planned due to coronavirus outbreak.

Pakistan

April 29, 2020

PKSTAN 5 5/8 12/05/22 Price

PKSTAN 6 7/8 12/05/27 Price