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Today, Bloomberg released a rare interview with Venezuela’s de facto President Nicolás Maduro, alongside separate conversations with opposition leaders Juan Guaidó and Henrique Capriles. We provide a summary of each interviewee’s perspective and brief commentary.
Maduro paints his administration as a victim of US policy while reasserting his goodwill towards investors and creditors. Unsurprisingly, he seeks to rally lobbying efforts by creditors and oil companies to end the sanctions regime.
Juan Guaidó comes off as not being in control, both regarding US sanctions and the potential consequences of the International Criminal Court’s inves...
The massive pandemic-related liquidity injection started to push prices up in January, with inflation reaching 48.8% YoY in May.
Fernández’ administration has tried to control inflation through price controls and meat export bans.
Price controls have proved to be an ineffective tool, as inflation has accelerated this year for both regulated and unregulated products.
We expect inflation to end the year at 48.9%, as our base case scenario is that a tighter monetary policy will ease inflationary pressures during the H2-2021.
However, if the government increases fiscal spending as the legislative elections approach, inflation could climb to 55.5% in 2021.<...
Ecuador has been waiting since April for the second disbursement from the IMF, equivalent to USD 400 mn.
According to our estimations, all of the goals set for the first four months of the year were met; so the delay is likely related to Lasso’s intentions to modify it.
Lasso has reiterated that he would not raise taxes, instead, he is pushing for the removal of distortive taxes and for a pay raise for teachers.
The measures would add around 3% of the GDP to the fiscal deficit.
HOLD: Mixed signals coming from Lasso’s administration on the fiscal front, along with large gross financing needs, are dampening optimism. Yields remain very attractive, but at ...
The general government recorded an overall fiscal gap of -10.8% and a public debt stock of USD 50.8 bn (76.1% of GDP) in 2020.
In Q1-2021 the overall balance was -2.4% of GDP, funded almost entirely by domestic loans.
With the recent Eurobond issuance and domestic loans to finance the budget, the total general government debt stock rose to USD 58.6 bn (77.9% of GDP).
Debt interest payments are expected to be equivalent to 50% of total revenues by the end of 2021 (up from 44.6% in 2020).
Latin America is undergoing deep political and social turbulence, as the pandemic laid bare high inequality and insufficient social safety nets across the region.
Out of 18 countries in the region, 10 are now ruled by left-wing governments and that number could turn to 11 shortly.
The government has run large fiscal deficits for several years. However, the budget deficit fell last year after the foreign debt default.
While the government has recently cut subsidies, they remain high.
The growth of monetary aggregates has slowed down since last year.
But the absence of a macroeconomic stabilization plan indicates that inflation is very unstable and could accelerate again.
Only a third of our 21 countries have seen their FX reserves go up in 2021, and only 8 are above pre-pandemic levels.
At current levels, El Salvador, Sri Lanka, and Zambia look the most vulnerable liquidity-wise.
The upcoming SDR allocation, high commodity prices, and economic recovery – even if uneven – should boost cash availability, which remains the most important guarantee for bondholders.
Although the fiscal deficit remains in line with other emerging markets, fiscal spending continues to be high despite the withdrawal of the COVID-19 stimulus.
We believe that the government will slightly cut its deficit this year (4.9% of GDP in 2021 from 5.2% in 2020).
We expect gross financing needs to reach USD 19.2 bn or 11.5% of GDP between May and December.
If there is no IMF disbursement this year, Ukraine will cover its external debt service through a major international reserves drawdown.
HOLD: UKRAIN bonds remain on a good roll, and their short-term outlook does not look concerning. Still, risk factors weigh more on a medium to long-term horizon and cap t...
International tailwinds favor Argentina and have allowed the central bank to achieve some relative stability in the exchange rate.
We look into carry trades involving hard currency domestic bonds and inflation-linked bonds (BONCER).
Over the last 6 months, BONCER 23 greatly outperformed the hard currency curves, posting a USD return of 15.2% thanks to a strong inflation adjustment on capital and relative stability in the exchange rate.
Going forward, we expect high inflation and a relatively stable exchange rate in the lead-up to the regional elections, which favor...
Daily infections are decreasing in Egypt after authorities introduced some light measures. Nevertheless, cases are likely being under registered.
The vaccination campaign is off to a slow start in the country, with just 2.6% of the population having received at least one dose, but according to the health minister, 100% of tourism workers have been vaccinated.
Tourism revenues went from 11.9 bn in FY 2018/19 to USD 9.8 bn in FY 2019/20. For the first two quarters of the 2020/21 FY, these revenues have plummeted 75.3% in YoY terms.
The government is trying to promote Egypt as a tourism safe spot, and although there has been some recovery, the slow vaccination drive remains...
The Central Bank of Nigeria (CBN) has adopted the more market-based Nafex rate as the government’s official exchange rate for the naira.
The CBN will now operate a managed float policy, which allows fluctuations driven by market dynamics, with regular interventions from the monetary institution.
The naira FX rate currently stands at 410.17 USD/NGN, a 7.1% devaluation from the previous official rate, but still 22.2% lower than the parallel market.
The new exchange rate policy should unlock the disbursement of a USD1,500 mn loan from the World Bank.
HOLD: The upcoming flurry of hard-currency funds will keep Nigeria’s payment ability safe for now, but yiel...
After more than a year of expansionary monetary policy and low rates, doubts arise as to whether Africa's central banks will be able to maintain it
Amid concerns about the reactivation of the economies, inflationary pressures arise that put pressure on the monetary authorities
Central banks, which tend to act collectively, maintain a policy of greater tolerance to inflation to stimulate economic growth
Relations between President Bukele and the Biden administration got off on the wrong foot
However, we believe that improving the relationship between the two countries would represent a win-win for both.
The relationship between El Salvador and China has improved remarkably, but it is still a relationship that is just beginning.
We expect a rapprochement between the governments of the U.S and El Salvador in the mid-term.
HOLD: Concerns among investors are increasing due to the unwillingness to address the erosion of public finances and accelerated institutional deterioration, but a possible rapprochement with the United States keeps the market on the lookout.
May was again positive for our EMFI Core Index, which gained 2.0% compounding on the 4.3% gains of April.
We saw gains across the board, with all but two names posting positive results, but the strongest performance was concentrated on the riskiest credits.
ZAMBIN (8.6%) and ECUA (4.8%) repeated as outperformers from April, while LEBAN (6.4%), SRILAN (6.4%), and ARGENT (5.0%) joined in with strong results.
Our Macro Team focused mostly on updating our views on each economy. We also debuted our new monthly Caribbean Watch, in which we cover the Bahamas, Barbados, and Jamaica.
Our Strategy Team examined the commodity bull market and its impact on African exporters, a...
The general government recorded its highest primary surplus in twelve years (+1.0% of GDP) in the 9 months between July-March of FY2020/21.
Nevertheless, interest payments and transfers to provinces continued to blow a hole in the fiscal balance, creating a global fiscal deficit of 3.6% of GDP.
The government was able to secure ample financing from domestic commercial banks, facilitated by the appetite for more liquid assets.
The country is improving its domestic debt profile and issuing less domestic debt thanks to the gradual reduction of the fiscal deficit.
SELL: Possible short-term upsides could emerge from positive fiscal news, but Pakistan’s fundamental...
Among our sample of countries, The Bahamas showed the worst fiscal results in the pre-pandemic period
We estimate that Jamaica will improve its fiscal performance by registering a fiscal balance of -0.6% of GDP during FY 2021/2022 (from -3.6% in FY2020/2021).
Barbados would show a slight improvement in the primary deficit from -1% of GDP to -0.5% but would maintain the same level of fiscal deficit (5% of GDP)
The Bahamas will register a fiscal balance of -10.2% of GDP during FY 2021/2022 (from -13.5% of GDP in FY2020/2021)
We reaffirm our ratings for the bonds of The Bahamas (BUY), Barbados (HOLD), and Jamaica (SELL)
Zambian authorities reached a broad agreement with the International Monetary Fund (IMF) towards an Extended Credit Facility.
However, the multilateral institution stated that, to resume negotiations, authorities must implement the policies previously agreed.
National Assembly and executive cabinet were dissolved on May 13, marking the kickoff of the electoral campaign for the general election of August 12.
The controversy surrounding the postulation of incumbent President Lungu, and the complete renewal of the electoral roll is tainting the event.
With inflation on the rise after the controversial dismissal of yet another central bank high-level policymaker, the lira is coming closer to the 9 USD/TRY threshold.
We believe an interest rate cut might be on the way, as the central bank goes back to its old ways of implementing Erdoğan’s unorthodox monetary policies.
In the meanwhile, discontent among locals is surging. The latest Metropoll survey revealed that Erdoğan’s approval rate decreased from 55.8% to 44.5% in the last year.
Metropoll also studied several presidential elections scenarios with Erdoğan losing in every matchup, except when he faces the CHP leader as his rival.
HOLD: Liquidity ...
The maturity structure of public domestic debt worsened in 2020, with most of the issuance coming from short and medium-term instruments.
Adverse market conditions due to the COVID-19 pandemic have caused investors to be demanding short-maturing, more liquid domestic bonds.
The Central Bank of Sri Lanka (CBSL) and commercial banks increased their share of public domestic debt in 2020.
The government shifted towards Foreign Currency Term Financing Facilities (FCTFF) and bilateral concessionary borrowing as high financing costs made it almost prohibitive to tap international capital markets.
SELL: The sovereign's improved liquidity profile doesn’t correct t...
Recent developments have triggered uncertainty about the future path of oil prices, which influenced every economic figure for Angola in the past.
We remain confident that Angola will report better fiscal figures with respect to official estimations; however, we remain in the dark because of a notable delay in publishing 2021 numbers.
Likewise, Angola’s gains from high oil prices are limited because of the weakness the domestic oil sector.
Additionally, there are reports that signal a slow recovery of the non-oil economy because of the pandemic lasting effects.
Authorities budgeted a public sector overall result of -9.7% of GDP for 2021.
Part of the deficit is expected to be covered by the issuance of an international bond for USD 3.0 bn (7.8% of GDP).
During the last five years, persistent financing from the Central Bank to the non-financial public sector, has boosted monetary base growth.
International reserves stood at USD 4,839 mn on May 21, 2021, but only USD 1,890 mn correspond to liquid foreign currencies (2.2 months of imports).
HOLD: In view of no major short-term payments and the stabilization of FX reserves, investors are safe for now.
Nigeria advances towards a new issuance of at least USD 3bn in Eurobonds.
Using a reference issuance of USD 3.5 bn, we came up with two possible structures of the issuance.
NGERIA is a HOLD due to offering an unattractive yield for its risk level, but the issuance could bring interesting tactical opportunities.
The recovery program agreed with the IMF proposes to abandon the fixed exchange rate, which we evaluate positively.
With major significant cuts, the government intends to reduce the primary deficit from -10.2% in 2020 to -1.8% in 2021
Along with fiscal policies, the government proposes a debt restructuring plan, whose main objective is to reduce the debt/GDP ratio to 60% by 2035.
In addition to the economic challenges, the government faces the highest level of coronavirus cases since the start of the pandemic.
Although the agreement with the IMF is good news, some bondholders see their lack of input on the final deal as a breach of the terms under which they had gr...
Mercedes Llori, from Pachakutik (indigenous left), was elected as the new president of the National Assembly with the support of CREO (center-right) and the Democratic Left (center-left).
The PSC-CREO alliance was dissolved after CREO did not support PSC’s candidate. The PSC (conservative) said that this was a violation of an agreement also signed by UNES (far-left).
Llori declared that she will guarantee governance and stability to the new government, pointing to minimum agreements for the next 100 days.
There are important ideological and political differences between the parties, so we view this alliance as temporal and fragile.
HOLD: After the massive pos...
At just 10.8% of GDP, Argentina has a low tax ratio compared to other Latin American countries.
Tax revenues increased in 2020 despite the GDP drop thanks to the withdrawal of the 2017 tax reform.
However, the recovery in tax revenues should be temporary, as it has been achieved through a more distortive tax system.
The posterchild of distortive taxes is the newly implemented PAIS FX tax, which just generated 0.5% of GDP in 2020, and is already decreasing in real terms and as a share of GDP in 2021.
Fiscal data has been better than expected thanks to the recovery in commodity prices.
An opposition victory is not priced yet as the mid-term elections begin to l...
The Ghanaian cedi has appreciated 1.78% YTD (from a depreciation of 3.7% at the end of 2020).
The commercial balance of goods recorded a surplus of USD 2,016 mn in 2020, and we forecast another positive result of USD 1,857 mn for 2021.
Foreign Direct Investment (FDI) shrunk in 2020, but the nation has traditionally been an attractive market for companies, by regional standards.
Authorities are looking to boost FDI by alluring new capital into the country through a set of liberalizing policies.
HOLD: Although the recovery in commodity prices is good news for debtholders, the current fiscal situation requires an adjustment that rationalizes government spending...
Recent concessions by Maduro, including a new CNE, rekindled hope of a change in the stagnant status quo, especially given a moderate positive reaction from international players.
Nonetheless, Guaidó’s core demand is a clear schedule for short-term presidential and legislative elections, to which Maduro is extremely unlikely to agree.
The new CNE is regarded as a ploy to further divide the opposition. Guaidó rejected its designation and continues to antagonize alternative leaders who deem it a political victory.
In our view, the dynamics of the political stalemate haven’t changed since our last report. Maduro made some low-cost concessions but d...
There is a growing rift within the opposition coalition about the strategy going forward. An increasing number of politicians want to participate in regional elections, but Guaidó himself still refuses to do so.
Regardless of the participation, we see little chance of a regime change over the next 4 years.
We do think that there will be a relaxation of economic sanctions in the mid-term, but not without some concessions from Maduro.
In our view, any proposal to restructure Venezuelan debt in the short-term is fantasy, but we do think the US could lift the restriction on the trading of bonds in the secondary market.
We highlight three key elements of uncertai...
We investigate present issuances to gauge whether rising credit spreads could feed rollover risk for sovereigns facing significant short-term maturities.
Issuance volume falls considerably above an 8% yield and cease to exist altogether above 10%
The names that issue between 8% and 9% are a mixed bunch, but are usually muddling through solvency and fiscal problems and poor governance.
On December 7, incumbent President Nana Akufo-Addo from the New Patriotic Party, was re-elected in the first round with 51.3% of the votes.
The election had a high turnout, with 78.9% of the registered citizen casting their votes.
For the first time an elected president will face a hung parliament, as the New Patriotic Party and the National Democratic Congress won 137 seats each, with the remaining one going to an independent candidate.
Opposition Candidate John Mahama rejected the result and will challenge them at the Supreme Court.
Despite fears of high bond debt, our recommendation is HOLD Ghana's debt.
Recently, a new Covid-19 variant was detected in the United Kingdom (UK)
Before the pandemic, the UK was the largest source of tourists to Barbados.
Although there is still much uncertainty about the new variant of covid-19, we do not believe there will be a significant impact on the Barbadian economy.
We take a comprehensive look at political risk indicators in a group of Emerging Market countries, trying to identify potential sources of conflict.
We analyze the electoral scenarios in the four Latin American nations that will have electoral processes during the end of 2020 and all of 2021.
We review the scenarios in the parliamentarians of Argentina and El Salvador, we comment on the electoral process that will take place in Venezuela, and we review the perspectives of the presidential elections in Ecuador.
We evaluated the World Bank’s governance indicators for our sample countries in 2019 and share our view of these indicators for 2020.
