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Global

May 27, 2022

Flash Note: A Cure Worse Than the Disease

Guyana's oil production is growing steadily thanks to the start-up of Liza Phase 2.

We estimate that the average oil output will double this year.

The government is considering creating a state oil company to get higher profits from the oil sector.

At first glance, it seems like a risky measure due to the country's little experience in the oil sector and the poor performance of state oil companies in Latam.

SURINM 9 1/4 10/26/26 Price

Ukraine

May 26, 2022

Country Report: The Fortunes of War

As Russian forces concentrate their offensive in eastern Ukraine, more than two million Ukrainian refugees have returned to their country.

Finance Minister Serhiy Marchenko, confirmed that the monthly financing needed to cover the war-caused deficit is estimated at USD 5 bn.

Ukraine has no plans to restructure its debt for now, and as long as the West continues to support it, it is possible to honor its commitments, including September’s payments.

The U.S. is currently Ukraine's largest financial, humanitarian and military supporter, and the additional USD 40 bn in assistance will mean it has provided three times as much as the EU and all other bilateral and mu...

UKRAIN 9 3/4 11/01/28 Price

Ghana

May 26, 2022

Country Report: When it Rains, it Pours

Fiscal mismanagement drove Ghana to its current critical situation, and its fiscal outlook remains negative.

The fiscal deficit stood at GHS 10,244 mn (-2.1% of GDP) in Q1-2022, 940 mn less than what had been officially forecasted.

However, the lack of external financing sources, mixed with the rising cost of issuing new domestic debt, forced the government to rely on the Bank of Ghana to fund its deficit.

We forecast an overall balance of -6.8% of GDP for 2022, 0.2 p.p. better than the budgeted target, but still a worrisome result in terms of debt sustainability.

BUY: With such low prices, we like the risk-reward metric for the country. While market pricing ...

GHANA 7 5/8 05/16/29 Price

GHANA 8.627 06/16/49 Price

Angola

May 24, 2022

Country Report: Diamonds are Angola's Best Friend

After its exit from the country 10 years ago, mining giant De Beer will return to Angola through two new joint ventures with Angolan state company Endiama.

The company declared that Angola is one of the most attractive countries globally for the diamond industry.

According to the Angolan oil and resources minister, 60% of the basins are still unexplored.

Angola is one of the few diamond mining countries reporting an increase in its production.

Official estimations suggest that export inflows of rough diamonds will be around USD 1.3-1.5 bn, or 1% of the GDP in 2021, but with the potential to increase to at least 2% of the GDP.

HOLD: High oil prices imply healt...

ANGOL 8 1/4 05/09/28 Price

Global

May 20, 2022

Strategy Viewpoint: Two Can Play the Domestic Debt Game

Sub-Saharan domestic debt markets, with Ghana and Zambia among them, have been an alternative for foreign investors for quite a while.

The current tightening global conditions have had an impact on capital flows, but not every country has been affected in the same way.

Domestic debt held by non-residents dropped by 13.3% between Q1-2021 and Q4-2021 in Ghana, while in Zambia, the stock soared by 253% over the same span.

We believe there is potential in the Ghanaian domestic debt over a mid-term horizon, but the growing fiscal dominance represents a considerable downside risk.

With a decrease of 25.3% YTD, we estimate that the Ghanaian Cedi has depreciated beyond its...

Global

Costa Rica

May 18, 2022

Strategy Viewpoint: Surfing the Wave

Costa Rica’s total debt reached 53.2% of GDP in March. Domestic debt represents 35.1% of GDP and external debt 18.1%.

Domestic debt is highly front-loaded, in comparison with the external debt which is more fairly distributed through the years.

Liquidity indicators are neutral to negative, but we do not see the credit at default risk if the Eurobond issuance and the IMF disbursement take place.

The recent outperformance of Costa Rican bonds vs. regional peers and the EM asset class as a whole makes the bonds less attractive by limiting future gains.

SELL: The US 10-year yield at 3% puts a ceiling on the upside potential of Costa Rican ...

COSTAR 4 3/8 04/30/25 Price

COSTAR 7.158 03/12/45 Price

Egypt

May 18, 2022

Country Report: Staying Calm

The current account reported notable improvements in the first half of the current fiscal year, which would smooth the impact coming from the Russia-Ukraine conflict.

Most of the impact will rely on the trade balance, with greater energy and food costs.

Egypt has already secured coverage of its current account deficit after agreeing to USD 22 bn in investments from Gulf countries.

The Gulf funds represent 58% of total gross external financing needs, which we estimate amounts to USD 37.7 bn, 8.4% of the GDP.

EGYPT 6.588 02/21/28 Price

EGYPT 7.903 02/21/48 Price

Lebanon

May 17, 2022

Flash Note: A New Parliament

The election results indicate a low turnout of around 41% compared to the 2018 participation

Lebanese Forces have won the largest Christian bloc in Parliament, ahead of its opponent, the Free Patriotic Movement (FPM).

Hezbollah and its Shiite allies, on the other hand, lost their majority with 62 out of 128 seats.

We believe that these results could favor the country to unlock an agreement with the IMF.

LEBAN 7 03/20/28 Price

LEBAN 7 1/4 03/23/37 Price

El Salvador

May 17, 2022

Country Report: Sources of Last Resort

The government could secure additional financing from CABEI.

The domestic market can provide additional funds if the required liquidity reserves of private banks are reduced.

The pension reform would be the most important source of funds.

By making significant efforts, the Salvadoran government seems to have enough alternative financing sources to pay the USD 800 mn corresponding to the 2023 bond maturity.

HOLD: Eurobonds shed another 6 pts over the month to trade at an average 37 cents, except for the two front-end bonds, which are trading at a premium that prices a high probability of repayment.

ELSALV 8 5/8 02/28/29 Price

ELSALV 7 5/8 02/01/41 Price

Lebanon

May 13, 2022

Country Report: Parliamentary Elections 2022

On May 6 and 8, Lebanese expatriates cast their votes for the country’s legislative elections, reaching a 63.05% turnout.

This Sunday, May 15, the elections will take place in Lebanon, where residents will cast their ballots for the 718 candidates competing to win a seat in Parliament for the next four years.

We expect a participation rate similar to the previous elections, around 50%.

Even though the diaspora vote reached record numbers, we don’t think it will be sufficient to tip the balance in one direction.

BUY: Bond prices remained stagnant in the lead-up to Sunday’s elections, but we still see a positive risk/reward profile due to rock-botto...

LEBAN 7 03/20/28 Price

LEBAN 7 1/4 03/23/37 Price

Bolivia

May 12, 2022

Country Report: Good, but Not Good Enough

The real GDP expanded 6.1% in 2021, driven by sectors like mining, and transport and communication.

The increasing commodity production combined with rising international prices to boost external revenues.

Total exports of goods rose by 57% YoY to USD 10,919 mn, and the country recorded a current account balance of USD 815 mn (2.0% of GDP), its first positive balance since 2014.

We forecast a 2.6% YoY GDP expansion and a positive current account of 0.6% of GDP for 2022.

BUY: Improved fiscal results and high yields relative to the fundamentals make Bolivia an attractive risk/reward proposition.

BOLIVI 4 1/2 03/20/28 Price

El Salvador

May 12, 2022

Flash Note: The Risky Shark Mindset

On May 9, Bukele announced the acquisition of another 500 bitcoins, the largest single purchase so far, to reach 2,301 Bitcoins holdings.

Considering the current price of Bitcoin of around USD 29,000, the losses of the Bukele government amount to USD 36.1 mn or 35% of its Bitcoin holdings portfolio.

ELSALV 8 5/8 02/28/29 Price

ELSALV 7 5/8 02/01/41 Price

Ecuador

May 11, 2022

Country Report: Little Victories

Modifications introduced in the recent tax reform represented around 0.3% of the GDP in additional tax revenues in April, showing a historic high in tax income collection.

Likewise, oil revenues have increased 64% in YoY terms for the first four months of the year.

Authorities decreased their official estimation of fiscal deficit from 2.7% to 2.2%, while President Lasso ensured that it would be even lower.

Nevertheless, higher oil prices represent a burden on expenditures, as oil subsidies have grown since president Lasso froze fuel prices in October 2021.

The government is still struggling to meet IMF targets.

Ecuador looks less attractive relative to compar...

ECUA 0 1/2 07/31/30 Price

Kenya

May 10, 2022

Flash Note: Sustainable but on the Risky Path

Kenya's debt exceeded 70% of GDP by 2021 and is expected to continue growing in FY21/22.

Part of the measures to reduce debt vulnerabilities is to increase reliance on concessional loans and move away from high-cost commercial debt.

The government plans to go ahead with the USD 1 bn Eurobond issuance by the end of June, despite the rising yields.

KENINT 7 1/4 02/28/28 Price

KENINT 8 1/4 02/28/48 Price

Venezuela

May 10, 2022

Country Report: Riding the Oil Wave

We expect oil production to rise 38% YoY to 767 tbd in 2022 and oil exports to come at USD 20.9 bn (+80% YoY).

We find strong growth in imports, which we forecast at USD 11.2 bn this year, 27% up against 2021.

Non-oil tax revenues show strong growth so far, and we expect them to end the year at USD 5.0 bn (6.5% of GDP), a 107% rise against the USD 2.4 bn (3.5% of GDP) of 2021.

Given developments in the oil, external and fiscal sectors, we revise our GDP growth forecast for 2022 to 11.2%, up from our previous 5.2%.

We expect inflation at 74%, below Sudan (244%), Lebanon (239%), Zimbabwe (86%), and Turkey (79%), which would mark the first year since 2016 that Venezue...

VENZ 9 1/4 09/15/27 Price

VENZ 7 03/31/38 Price

Sri Lanka

May 10, 2022

Flash Note: Skating on Thin Ice

Sri Lanka’s PM, Mahinda Rajapaksa, submitted his resignation and called for a new all-party unity interim government.

However, protests did not abate and we believe will not do so until a clear solution in the political field is provided.

An IMF team will meet with the economic team of Sri Lankan authorities during May 9-23 to continue the discussions on an IMF-supported program.

SRILAN 6 3/4 04/18/28 Price

Costa Rica

May 05, 2022

Country Report: How does the Chaves government look like?

Most new ministers appointed by Chaves have proven expertise in the area they will be in charge of.

Regarding foreign relations, Chaves could take a turn from his predecessor Carlos Alvarado concerning the totalitarian governments of Latin America.

The government and the Assembly headed by the opposition seem on the way to dialogue.

We are cautiously optimistic about relations between the executive and legislative branches due to the recent history of disagreements.

SELL: While liquidity and solvency indicators are neutral to negative, Eurobonds do not seem attractive given their relatively low yields.

COSTAR 4 3/8 04/30/25 Price

Nigeria

May 05, 2022

Country Report: As Dry as a Bone

The World Bank has urged Nigeria, once again, to reform its multiple exchange rate systems.

The premium in the parallel market has soared from 18.3% in 04-21 to 40.9% at the end of April.

Between export, remittances, and capital import, the country is currently receiving USD 6,821 mn on average per month, -26.9% less than in 2019.

We don’t expect changes in the current exchange rate policy framework.

HOLD: Good debt ratios offset the current administration’s poor economic policy.

NGERIA 6 1/2 11/28/27 Price

NGERIA 7 5/8 11/28/47 Price

Turkey

May 04, 2022

Country Report: Erdoğanomics

The government is still looking away and resists fighting inflation with conventional measures such as rising interest rates.

By looking at the expenditure categories, inflation is driven by rises in food and beverages, transport and electricity, gas and water; all of which are affected by the rally in commodities.

While this is out of the central bank’s control, its monetary policy only adds extra pressure on public finances and prices while also weakening the lira.

The finance minister expects that the disinflation process will start in May, but there is not one sign in sight that could encourage this over-optimistic view.

SELL: Despite good debt ratios, th...

TURKEY 6 1/8 10/24/28 Price

Argentina

May 03, 2022

Country Report: Waiver Incoming

Despite signing an EFF program with manageable targets, it looks like the government will not fulfill the quantitative performance criteria agreed with the IMF.

The political stubbornness of the current administration will cause significant damage to the country’s economic outlook.

The central bank is still unable to buy enough foreign currency and accumulate the so-needed FX reserves.

BUY: The credit is attractive at current low prices, as they are discounting an extremely aggressive restructuring that is not entirely justified by solvency ratios, in our view.

ARGENT 0 1/2 07/09/30 Price

Suriname

May 03, 2022

Flash Note: Bondholders are Still Betting on Oil

A bondholder group in control of 75% of Suriname’s Eurobonds presented a restructuring proposal that would backload repayment to achieve higher recovery values than those offered by the government.

Bonds are trading at 70-72 cents on the dollar, while the government’s latest proposal implied a 42% recovery value to be enhanced by contingent Value Recovery Instruments.

Although details on the proposal presented by the bondholders remain limited, our estimates put the implicit recovery value roughly in line with current bond prices.

We reaffirm our SELL recommendation due to a risk/reward profile that is skewed to the downside.

SURINM 9 1/4 10/26/26 Price