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Bolivia

December 07, 2021

Country Report: Sleepwalking Towards a Fiscal Cliff

The fiscally expansionary budget for 2021, which included a -9.7% fiscal deficit for 2021, clashed with the harsh reality, forcing the government to turn to a relatively more austere approach.

Until June, the overall balance stood at -1.5% of GDP, but we forecast expenditures to pick up the pace in H2-2021, to close with a fiscal gap of -7.7% of GDP.

The public debt stock has slowed its growth, and we expect it to close at 77.3% of GDP in 2021.

The budget proposal for 2022 once again set overly optimistic goals for revenues and expenditures, outlining an overall deficit of -11.5% of GDP.

BOLIVI 4 1/2 03/20/28 Price

Global

December 07, 2021

EMFI Monthly Review – November

Our EMFI Core Index plummeted a massive 4.3% in November, the largest decline since the 26.3% seen in March 2020.

The sell-off was generalized, with sixteen names losing ground on the month, one (Suriname) posting slight gains, and three holding relatively steady.

While the sell-off was clearly market-wide, for several key underperformers –like LEBAN (-24.2%), ELSALV (-11.8%), VENZ (-10.8%)– idiosyncratic developments amplified the effects of global fears.

On the other hand, SURINM (+1.1%) was the sole name on meaningfully positive territory, but ECUA (+0.4%) and BARBAD (+0.3%) also held their ground.

Global

Egypt

December 07, 2021

Country Report: Slowly but Surely

The government is expecting to increase its revenues by 2% of GDP in the next four years.

Revenues as a % of the GDP has been stagnant in the last three fiscal years, however, there are signs that FY 2021/22 would be a game-changer.

Expenditures are aligned with the reform package announced in May, which seeks to boost economic growth.

Even though domestic debt is high, Egypt is successfully implementing a debt management strategy that would reduce pressure in the long-term.

Thanks to its high positive real interest rates and relative stability, Egypt remains an oasis in the desert.

BUY: The solid fundamentals plus good growth prospects make us optimistic abo...

EGYPT 6.588 02/21/28 Price

EGYPT 7.903 02/21/48 Price

Sri Lanka

December 06, 2021

Country Report: Non-Transitory Inflation

Since price controls on specific food products, medicine, LPG, and some other essential goods were lifted on October 8, inflation has accelerated to its highest level in over eight years.

The Central Bank has kept interest rates unchanged since it last raised them in August 2021 to 5% and 6%.

The growth rate of monetary aggregates has been increasing in the past two years, with M2 rising by 17.3% since October 2020.

The inflation rate increased to 9.9% in November. Our forecast for end-2021 is 10.6%.

SELL: Our outlook on Sri Lanka remains negative, with an alarming decline of foreign reserves plus increasing macro instability due to an accelerating inflation and Fo...

SRILAN 6 3/4 04/18/28 Price

Global

December 02, 2021

Special Report: Elections in 2022

We review the main 2022 electoral events among the countries we cover, describing the big picture of Costa Rican, Lebanese, and Angolan elections.

The race for the Costa Rican presidency remains wide-open after former president José María Figueres lost most of his tenuous lead due to corruption scandals related to his party (PLN, center-left).

Lebanese Parliamentary elections will be held on March 27, 2022, six weeks ahead of schedule due to the recent amendments to the electoral law, which also allows Lebanese expatriates to vote for all 128 MPs instead of just six.

According to the polls, the Angolan opposition has a chance to beat the MPLA for the first ...

ANGOL 8 1/4 05/09/28 Price

ANGOL 9 3/8 05/08/48 Price

Ghana

December 01, 2021

Country Report: Low Expectations, Same Disappointment

Up to September, the overall fiscal deficit stood at GHS 29,263 mn (-6.6% of GDP), and we expect it to rise to -8.9% of GDP by the end of the year.

Fiscal revenues have disappointed as a consequence of weaker than expected economic activity.

The public debt stock rose to USD 58,249 mn (76.4% of GDP), 14.6% higher than in December-2020.

Despite concerns around debt sustainability, authorities didn’t modify their consolidation plan and budgeted a fiscal deficit of -7.0% of GDP for 2022.

Given the balanced risks and rewards for the sovereign curve, we maintain our HOLD rating for the name. We also suggest the guaranteed bond GHANA 30 bond.

GHANA 7 5/8 05/16/29 Price

Ecuador

December 01, 2021

Country Report: Yet Another Austere Budget

The discussion of the 2022 budget continues in the National Assembly, with the congressional opposition demanding more spending on health and education.

Our estimates suggest that the fiscal deficit will reach 3.4% of GDP, even considering the revenue-boosting tax reform and further cuts in expenditures.

The government expects to collect USD 985 from sales of non-financial assets, but this has been a pending challenge since Moreno’s government.

Gross financing needs will be an astonishing USD 11 bn (10.8% of GDP) next year, according to Treasury estimates.

The government expects to cover its deficit issuing domestic, multilateral and bilateral debt. It also p...

ECUA 0 1/2 07/31/30 Price

Argentina

November 29, 2021

Country Report: Stairway to IMF Heaven

Argentina needs an agreement with the IMF before March to avoid a default with the international organism.

We use Ecuador’s Extended Fund Facility to analyze the IMF’s priorities in recent programs.

Argentina will have to cut its energy subsidies and focus the spending on those who need it most.

We expect inflation to be leveraged by the government next year as part of a larger fiscal adjustment plan.

BUY: Current prices offer significant upside potential while putting a cap on the downside.

ARGENT 0 1/2 07/09/30 Price

Ghana

November 29, 2021

Strategy Viewpoint: Buy the Dip but Play it Safe

Ghana’s sovereign curve has bear-flattened towards inversion over the past 3 months as the bonds suffer a sharp sell off.

Yields rose on average 385 bps since the end of August on rising sustainability concerns due to higher debt levels, slower fiscal consolidation and weaker growth.

We remain unconvinced of Ghana as a credit overall, but we like the risk/reward in the guaranteed 30's.

The partial guarantee covers up to USD 400 mn in interests and principal payments in case of a sovereign default.

GHANA 7 5/8 05/16/29 Price

GHANA 8 1/8 03/26/32 Price

Lebanon

November 26, 2021

Country Report: The New Might Be Born After All

Recent amendments to the electoral law passed with an absolute majority, moved the parliamentary elections to March 27, 2022, almost two months ahead of schedule.

Among the amendments to the electoral law, Lebanese expatriates will be allowed to cast their vote from their place of residence and will get to elect all 128 MPs instead of only 6 seats.

President Michael Aoun has criticized the amendments to the electoral law.

By the November 20 deadline, around 244,442 ex-pats registered to vote in the next elections, almost tripling the number of ex-pats registered for the 2018 election.

Lebanese debt plunged to lows not seen since April, reinforcing the attractive ri...

LEBAN 7 03/20/28 Price

LEBAN 7 1/4 03/23/37 Price

El Salvador

November 26, 2021

Country Report: Hiding the Macro Trash Under the Bitcoin Carpet

Salvadoran government announced a 10-year bond backed by Bitcoin

The conditions of the offer completely ignore the poor macroeconomic and fiscal position of El Salvador.

The government's bid to hold bitcoin holdings for at least five years, reducing the supply and consequently increasing the price, seems overly optimistic.

Due to this announcement, we believe that the potential agreement with the IMF is unlikely in the short term.

HOLD: El Salvador’s yield curve continued to invert as bond prices sank below March 2020 levels.

ELSALV 8 5/8 02/28/29 Price

ELSALV 7 5/8 02/01/41 Price

Venezuela

November 25, 2021

Strategy Viewpoint: Another Day at the Office

Partial results for the November 21 elections show the opposition won 3 of 22 governorships and either 40 or 117 of the 322 mayorships already called.

On aggregate, Chavismo received 3.6 mn votes (45.3%), the Democratic Unity Roundtable (MUD) 1.9 mn (24.5%), Fuerza Vecinal 456 thousand (5.8%) and Alianza Democrática 1.3 mn (15.7%).

The results will allow emerging moderate leaders, especially Manuel Rosales, to press for influence within the opposition, but we do not believe that will affect the timing or probability of a regime change.

Our base-case scenario remains that the Mexico talks will resume in 1Q22, but we see low probabilities that they will yield any ma...

VENZ 9 1/4 09/15/27 Price

VENZ 7 03/31/38 Price

Nigeria

November 23, 2021

Country Report: From Oil Riches to Rags

OPEC oil production rose to 27.5 mn bl/d in October, a 0.8% increase, but the output remains below the group’s target.

Nigeria’s production averaged 1.35 mn bl/d in October, -3.2% against September and 0.25 mn bl/d below its allocation.

Despite the poor results from the oil industry, GDP expanded 4.1% YoY in Q3-2021.

The country is on track to reach our forecast of 3.1% GDP expansion for 2021, 0.6 p.p. higher than the official projection.

Neutral-to-positive solvency and liquidity ratios balance out poor macroeconomic expectations to justify retaining our HOLD recommendation.

NGERIA 6 1/2 11/28/27 Price

NGERIA 7 5/8 11/28/47 Price

Turkey

November 23, 2021

Flash Note: Harakiri

The MPC decided to cut the interest rate by 100 bps on November 18 and left the door open for another cut in December.

Erdogan spent the whole week defending this policy and declared that Turkey was fighting an “economic war.”

The president also accused critics of his heterodox monetary policy preferences of being “vassal economists” and “global money tumblers”.

The lira is unanchored, having fallen 42.2% YTD and more than 25% just in November. The TRY/USD currently trades at around 12.8.

TURKEY 6 1/8 10/24/28 Price

TURKEY 5 3/4 05/11/47 Price

Argentina

November 19, 2021

Flash Note: Devaluation at the Gates

Dollar linked bonds offer a negative yield at the moment due to fears of a large depreciation in the short-term.

We expect that the current exchange rate gap could push those bonds higher.

ARGENT 0 1/2 07/09/30 Price

Suriname

November 19, 2021

Flash Note: Reading Between the Lines

On November 3, the Inter-American Development Bank (IDB) executive board approved a package of loans for USD 450mn for Suriname.

Although the government stated that these resources are "independent of any cooperation with the IMF", but this might be stretching the truth

If the IMF agreement is not reached, the government of Suriname would only receive USD 72mn.

The finance minister said that Georgieva pledged to do her best to bring the program for discussion to the IMF’s board as soon as possible and indicated it would be a matter of a few weeks.

We maintain our baseline scenario that the financial agreement will be approved in the coming mont...

SURINM 9 1/4 10/26/26 Price

Ukraine

November 18, 2021

Flash Note: The Energy Game

Germany's energy regulator has suspended the approval for the Nord Stream 2 pipeline on technical grounds.

Belarus announced it will stop supplying electricity to Ukraine beginning on November 18.

The U.S. and Europe are discussing possible responses in case of a Russian attack on Ukraine.

Policymakers worry that gas prices might keep increasing throughout the winter season across Europe.

UKRAIN 9 3/4 11/01/28 Price

Angola

November 18, 2021

Country Report: Slow and Steady Wins the Race

The 2022 Budget estimates a close-to-zero surplus of 0.003% of the GDP, but a primary surplus of 5.5% of the GDP.

However, we believe that some of the macro assumptions are overly optimistic, especially regarding inflation and oil production while economic growth forecast is cautious.

We calculate there will be a deficit of 1.5% and a primary surplus of 4.7% in 2022.

The biggest challenge for the country will be covering its financing needs of 10.7% of GDP, which will likely translate into more domestic and external debt.

SELL: We don’t think Angola’s significant dependance on external liquidity and a potential negative outcome in the 2022 presidential ...

ANGOL 8 1/4 05/09/28 Price

ANGOL 9 3/8 05/08/48 Price

Zambia

November 16, 2021

Country Report: Slowly Rowing in the Right Direction

The copper price rally has boosted government revenues, but we still expect the 2021 fiscal deficit to close at -7.4% of GDP, 1.9 p.p. higher than the official target.

The proposed budget for 2022 aims to cut the overall deficit to -6.7% of GDP, and to record the first primary surplus in more than a decade.

On the revenue side, the government expects to collect more than 20% of GDP, despite modifying the mining taxation to allow the producers to deduct royalties from income taxes.

On the expenditure side, authorities aim to cut capital expenditures and good and service consumption while restarting the external debt service.

Without much room for upside...

ZAMBIN 8.97 07/30/27 Price

Global

November 16, 2021

Strategy Viewpoint: The Caribbean Is Not Shining

Caribbean and Central American economies are slowly recovering from the impact of the COVID pandemic. We compare Jamaica, Barbados, Bahamas, and Costa Rica in search of investment opportunities.

Jamaica offers the lowest yield (3.4%), while the Bahamas offers the highest (8.3%). Barbados (6.2%) and Costa Rica (5.5%) sit in between.

Credit indicators are negative for all the names, as the pandemic heavily impacted domestic activity, fiscal revenues, and FX reserves.

We continue to favor Costa Rica, and Bahamas as a HOLD, and deem Jamaica as a SELL.

Barbados needs to decrease its deficit at least to 3.15% of GDP, from an 11-year average o...

BAHAMA 6 11/21/28 Price

Argentina

November 15, 2021

Flash Note: Parliamentary Elections: A Quick Overview

With 98.84% of the votes counted, the opposition coalition (JxC) defeated the government (FdT) nationally by 8.4 points (41.97% to 33.57%).

For the first time since 1983, Peronism won’t have enough senators to reach quorum by itself.

The government will be forced to negotiate with either JxC or other third parties, both in the Senate and in the Chamber of Deputies.

Argentina Global bonds are now trading around 2% higher than Friday's close.

ARGENT 0 1/2 07/09/30 Price

Costa Rica

November 12, 2021

Country Report: Good but Not Enough

For the first time since 2008, the government ran a primary surplus (0.3% of GDP) in the first nine months of the year; however, the fiscal deficit stands at -3.9% of GDP.

The fiscal estimates of the budget look very pessimistic because they were calculated based on a GDP growth of 3.7%, 0.8 p.p. lower than the central bank's recent forecast.

If the government manages to implement the proposed spending cuts, we estimate the primary surplus would reach 0.1% of GDP in 2022; however, the overall balance will still be a negative -4.7% of GDP.

More reforms are required to achieve the primary balance target of 0.3% of GDP agreed with the IMF, but the vision of the presiden...

COSTAR 4 3/8 04/30/25 Price

COSTAR 7.158 03/12/45 Price

Venezuela

November 10, 2021

Strategy Viewpoint: All Noise, No Signal

Two key dates loom large over Venezuela’s interim government: the regional and local elections scheduled for November 21, and the expiration of Juan Guaidó’s legal mandate on January 5.

The regional and local elections look like a non-event to us we don’t expect them to change the current status quo in any way.

Voluntad Popular’s confrontation with one of its key partners in the G4 coalition, Primero Justicia, has made a renovation of Guaidó’s mandate unlikely.

Mexico talks could prove more relevant than the elections, but Maduro negotiates from a position of strength and doesn’t look willing to make concessions that woul...

VENZ 9 1/4 09/15/27 Price

VENZ 7 03/31/38 Price

Ukraine

November 09, 2021

Strategy Viewpoint: A Rising Star in Eastern Europe

Ukraine's yield is attractive given its fundamentals and the possibility of an IMF disbursement that will engross FX reserves.

We compare Ukraine's macro fundamentals to Romania, which offers much lower yields despite some significantly worse metrics, and to Turkey, which has roughly the same yield but worse indicators and a difficult political situation.

Solvency looks reasonably good, with the total debt to GDP ratio still below 50%.

HOLD: The current internal political situation and fears of a new Russian invasion have been pressuring the credit so far, but FX reserves cover next year's payments and the government remains committed to fis...

UKRAIN 7 3/8 09/25/32 Price

Bolivia

November 09, 2021

Country Report: Reserve (In)Adequacy

International reserve assets stood at USD 4,942 mn on October 26, 67.3% less than in December 2015.

The sharp fall in export revenues resulted in a negative external balance, causing the depletion of reserve holdings.

Traditional metrics such as import coverage and short-term debt still portray the stock as adequate.

However, the Assessing Reserve Adequacy (ARA) metric, estimated by the International Monetary Fund (IMF), raised concerns about the external vulnerability of the nation.

BUY: Bolivia offers an attractive risk/reward for the long term, as next year's payments are covered by FX reserves and the credit has room to compress.

BOLIVI 4 1/2 03/20/28 Price

Egypt

November 09, 2021

Country Report: A Latent Threat

For a long time, Egypt has strived to develop its local debt market by maintaining a high real interest rate, notably increasing foreign holdings of local Egyptian debt.

Nevertheless, the attractiveness has been eroding because of rampant inflation, which has reached highs from twenty months ago.

The main cause behind this trend is the surge in food prices, especially in cereals, as Egypt is a major net importer.

Authorities had opted to keep an unchanged interest rate given that inflation continues within the central bank’s range, but this could change in the last months of 2021.

Despite the accelerating inflation, we do not see rate hikes for the rest of th...

EGYPT 6.588 02/21/28 Price

EGYPT 7.903 02/21/48 Price

Barbados

November 05, 2021

Country Report: The Long Wait for Growth

Economic activity in the third quarter presented a strong 9.7% YoY recovery, however, the Barbadian economy accumulates a contraction of -3.2% during the first nine months of 2021.

Although tourism continued to be the largest contributor (3.7 p.p.) to the 9.7% GDP expansion during the 3Q21, we highlighted the contribution of 0.5 p.p. from government consumption to GDP.

We believe that the government will continue with the modest expansion in spending during the second half of the fiscal year.

Due to our low expectations about tourism recovery, we have lowered our growth forecast for 2021 from 1.4% to -0.7%.

HOLD: The economy needs to grow to improve indicator...

BARBAD 6 1/2 10/01/29 Price

Global

November 03, 2021

EMFI Monthly Review – October

Our EMFI Core Index fell 0.4% in October, with the number of positive and negative performances balancing out, but the higher weight of key underperformers pulling the overall result down.

SRILAN (+5.1), SURINM (+5.0) and ELSALV (+4.0%) lead the outperformers, while LEBAN (-7.8%), ARGENT (-5.4%), GHANA (-4.1%) and VENZ (-3.4%) led the underperformers.

During the month, we focused primarily on updating our macroeconomic forecasts as the end of the year draws near.

Global