Country UpdateJune 11, 2021
- Costa Rica
- Czech Republic
- Dominican Republic
- El Salvador
- Ivory Coast
- Saudi Arabia
- South Africa
- South Korea
- Sri Lanka
- Trinidad And Tobago
Market Pricesecuador sovereign
|ECUA 5 2/28/2025||59.75||60.25||0.00||0||+0||2025-02-28|
|ECUA 0 1/2 07/31/30||87.25||87.80||8.43||788||+788||2030-07-31|
|ECUA 0 07/31/30||56.55||57.10||6.48||851||+851||2030-07-31|
|ECUA 10 8/15/2030||24.75||25.25||0.00||0||+0||2030-08-16|
|ECUA 0 1/2 07/31/35||70.95||71.50||8.87||761||+761||2035-07-31|
|ECUA 0 1/2 07/31/40||64.15||64.70||8.93||734||+734||2040-07-31|
Market Mapecuador sovereign
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 tempo...
President-elect Guillermo Lasso takes over in a month, and the focus has moved from his surprise victory to the governance issues he might face.
The President of the National Assembly will be a key player. We believe the center-left parties are the frontrunners for the post.
Lasso’s first test will be to secure financing for the rest of the year, while figuring a way to face expensive campaign promises such as the minimum wage raise.
He has also promised zero deficit in four years, which would require austerity measures which were not openly discussed during his campaign.
HOLD: After the massive post-election ...
Guillermo Lasso won Ecuador’s presidential runoff, with the pro-market businessman receiving 52.4% of the valid votes compared to 47.6% for far-left economist Andrés Arauz.
Lasso was widely considered an underdog, but a late surge in the polls pushed him over the top. This was his third presidential campaign.
Blank and null votes accounted for 16.3% of the total (with 98.8% of the votes counted), after supporters of the indigenous movement promoted this option.
Lasso faces big challenges ahead. He will inherit a weakened economy and the need to form alliances to pass laws in the divided National Assembly....
With Andrés Arauz’s favorite for the April 11 runoff, we take a deep dive into the main economic policy risks associated with a potential return of correísmo.
Arauz proposes boosting aggregate demand with central bank financing of government spending. Contrary to popular misconception, dollarization does not completely prevent this sort of operation.
Nonetheless, a disorderly expansion of the central bank’s balance sheet could quickly compromise trust in dollarization and the stability of the domestic financial system.
To counterbalance expansion of central bank domestic liabilities, Arauz propos...
A key reform to the Monetary Code that is necessary to unlock the IMF’s second disbursement has been rejected two times in the early stages of the legislative discussion.
This is somehow surprising, given that the reform shouldn’t be too controversial and assembly members in charge of pre-approving it belong to parties that support the IMF program.
The law aims to strengthen central bank independence, prohibit central bank financing of the government, and improve confidence in the dollarization.
Even if the law is cleared for discussion in the plenary, it is still unlikely that it would be passed before the de...
Commodity prices have performed spectacularly after the chaos of March 2020: Precious metals (+ 25%), Gas (+ 66%), Oil (+ 254%), Copper (+ 93%) and Coal (+ 74%)
Some short-term conditions such as the stimulus packages of the main economies, inflationary risks and the weakness of the dollar promote a rise in real assets
Increased industrialization in India and the maintenance of government spending at high levels, support the boom in the long term
For now we know that there is a rise in prices, but there is no certainty that there will be a supercycle of several years because all the long-term factors are variable
In November 2020, the G20 countries and the Paris Club agreed on a common framework to deal with LICs with debt problems
The common framework seeks to provide more comprehensive support that goes beyond the pandemic shock
The key differences with the DSSI are that it has no time limitations, and requires both private sector involvement and IMF engagement
Guillermo Lasso made a comeback and is now winning the race for second place, receiving 33,656 votes more than Yaku Pérez with 99.99% of votes processed.
There are only 4 additional electoral records to process, alongside another 124 contested records.
Yaku Pérez is demanding a recount in sixteen provinces, and held a televised meeting with Lasso and members of the electoral commission to discuss the terms of this request.
Andrés Arauz won the first round of the presidential elections by a large margin.
His ballotage opponent will be defined in the next few days, given that there are 4,025 electoral records to be reviewed. It is likely to be Yaku Pérez.
The two surprises of the election night: the 12 p.p. of advantage of Arauz over the runner-up and the impressive performance of dark horse candidate Xavier Hervas.
Correísmo will be the dominant force in the National Assembly, followed by the indigenous movement.
Pérez might be the lesser evil if he makes it to the ballotage, as Arauz would be even worse new...
Bonds are trading on average 6.5% down against Friday in a range of 43 to 59 cents on the dollar, and yielding between 11.9% and 15.3%.
The government is fiscally constrained by external financing and does not face the same threat of sudden collapse as some of its peers do.
The next administration will only have to pay USD 457 mn per year on average on its Eurobonds, around 2.2% of Ecuador’s exports or 1.3% of its fiscal revenues.
At current prices we think the bonds appropriately compensate investors for the risk of a second restructuring, but not with a large margin.
According to CEDATOS’ latest survey of, 47.9% of voters remain undecided.
With elections this Sunday, Lasso is ahead by a margin of 0.7 p.p., within the poll’s margin of error.
It is reasonable to be concerned (to say the least) at this point with Arauz gaining ground in the last few weeks.
A run-off is a fact, with a second round that seems up for grabs.
General elections are scheduled for February 7. We believe that elections are a toss-up and will go to a run-off after a close Lasso win in the first round.
If Lasso wins, the non-financial public sector fiscal deficit would be cut from 5.4% of the GDP in 2020 to 2.5% of the GDP in 2021.
There will not be a 2021 budget until the new president takes office.
We expect that GDP will grow by 5.9% and deflation will smooth to -0.1%.
BUY: Electoral uncertainty has affected pricing significantly, and could weigh until we get the results of the first round. Looking beyond the electoral horizon, we favor the ECUA 0.5 2030 ...
ARGENT and ECUA bonds have faced a rough patch, but only ARGENT seems to have touched rock bottom.
Caution is the path to follow with both curves, but ECUA has a lot more ground to lose in case of setbacks.
ECUA prices reflect uncertainty over the upcoming presidential elections, but a victory from Correísmo in the first round could push them further down.
ARGENT bonds face a myriad of challenges, but a low cash price and yields exceeding 15% more than compensate the risks
Emerging markets faced massive capital flight as a result of the COVID-19 crisis.
However, there has been debate as to whether the severe initial shock was primarily the result of an interruption in liquidity flows and not the deterioration of macroeconomic variables.
Growth in emerging economies may have taken a permanent hit but, at the same time, emerging markets could become more attractive to those hunting for yield.
We believe that the deepness of the impact of the pandemic on EMs can be quantified.
GDP contracted 12.4% y-o-y in the 2Q20, the biggest quarterly drop in 20 years.
Deflation started in July in y-o-y terms and reached a historical minimum in October with -1.6%.
The silver lining is that the non-oil trade balance yielded a surplus for the first time in 20 years
International reserves grew by 60% in October, thanks to the IMF disbursement.
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 thes...
A new prepaid oil loan with Chinese multinationals has been in the works since late 2019.
The deal hasn’t been signed as oil production has decreased, making it difficult for Ecuador to meet its past commitments, let alone this new one.
In September, the oil shipments required to service previously contracted loans represented 68% of oil production and 92% of exports.
Oil shipments tied to debt service in 2021 will be equivalent to 190 tbd, 45% of September exports.
While uncertainty about the outcome of the elections in the next year increases, Ecuador’s curve continues to invert.
Scholarly research shows that domestic debt grew as a share of total debt in EMs during the first decade of the century, but defaults on domestic creditors still decreased significantly.
A default to domestic investors usually carries a higher political and economic cost than a default to foreign investors.
Domestic debt is usually concentrated in local financial institutions, such as banks, insurance companies and pension funds.
Historically, polls in Ecuador tend to have average error margins surrounding the 3 pp.
Being 3 months away from presidential elections can increase the error margin against the final results, as our historical comparison shows.
Current vote intention levels for each candidate, amongst the different available polls, show high dispersion levels.
Adding high levels of undecided voters to our accuracy assessment, we believe any poll-induced movement in the sovereign curve may be deemed as premature.
Both Argentina and Ecuador have been underperforming after their restructuring, with Argentina suffering significantly more.
At this point, given the significant increase in the spread between both curves, we still think both credits are cheap, but find Argentina more attractive.
In our view negative factors in Argentina such as a problematic official devaluation, inflation, increased strain on skinny reserve buffers are all already discounted in current prices.
On Argentina, we think much of the pessimist expectations on the Fernández administration’s policy-making are already priced in, leaving room f...
In the new EFF program, the IMF will push for a fiscal reform that aligns Ecuador with its regional peers.
In Ecuador, tax revenues represent 12% of the GDP, compared to the Latin America average of 18%.
Ecuador’s VAT (12%) is the second lowest in the region, only behind Paraguay’s (10%). The average is 14%.
Only Bolivia is above Ecuador in total expenditure, with 35% and 27% of GDP, respectively.
The IMF wants to increase the VAT rate up to 15% until end-September 2021 and reduce wage bill in the middle-term.
We maintain our view that the risk/return on the bonds is attractive, and favor ECUA 0.5 ...
The COVID19 crisis could open the door to new sovereign restructurings
In the last decade, sovereign default events carried out for political reasons have increased by 50%
Suriname and Ecuador, with previous complications, this year saw their position even more deteriorated due to the COVID19 crisis and announced restructuring
On the horizon El Salvador, Angola and Sri Lanka are the countries that generate the most concern of those followed by EMFI
An imminent alliance was formed by the center-right parties PSC and CREO.
The electoral body finally officially confirmed that Correa will not participate.
None of the candidates has an absolute majority (over 50%), so at this moment it looks like we will have a second round.
Part of the review process of the IMF consisted of interviews with all the presidential runners.
Guillermo Lasso would be the most market-friendly option, but from these initial declarations, it looks like Arauz is trying to soften his image.
With the restructuring operations in Argentina and Ecuador having finally settled, we look into the new bonds in search of attractive investment opportunities.
Low coupons in relation to yields result in very low cash prices, which makes both sets of bonds attractive versus other comparable sovereign bonds.
There is a distinct lack of carry, but it is offset by a very strong pull-to-par effect, which means that bond prices can rise very quickly.
In Ecuador, we find a very compelling combination of high potential returns if yields compress and limited downside if they deteriorate, which makes the credit a strong BUY f...
Pressure grows on China, as one of the world's main creditors, to enter the DSSI without restrictions
The terms of China's agreements with emerging or frontier nations are extremely aggressive compared to members of the Paris Club
One issue to keep an eye on is the participation of Chinese state banks in the renegotiations, as these entities hold about 75% of the country's total debt
Chinese authorities have spoken with 20 countries about the DSSI, and it has approved relief for an amount close to USD 3 bn for 10 countries
Angola and Zambia are the countries that most urgently need to address a restructu...
Despite that oil production has rebounded and oil prices have recovered some ground as well, current oil revenues are far from enough to offset the damage done in the previous months.
We expect the fiscal deficit to be USD 7.0 bn (7.3% of GDP), with a primary deficit of USD 5.1 bn (5.3%).
With amortizations equal to USD 4.1 bn, financing needs are equivalent to USD 11.2 bn, representing 11.6% of GDP.
As of July, the government has covered 41% of the financing needs through multilaterals disbursements and domestic financing.
With the pending disbursements from the IMF, that amount to USD 4 bn, and if the government f...
Ecuador’s primary elections finally ended yesterday with the presentation of the 18 presidential candidates together with their running mates.
There will be many underdogs in the contest.
The only familiar faces are Guillermo Lasso for president and Rafael Correa for Vicepresident.
There is a long way to go until February 7 and anything can happen. However, at first sight, we don’t believe an AP reelection is likely.
According to the electoral organism (CNE), the primary elections will be held between August 9 and 23.
The only political party that has already defined its candidate is CREO (center-right), with Guillermo Lasso confirming that he will be running for the third time.
The ruling party Alianza País (AP, center) has not confirmed its candidate yet, with former VP Otto Sonnenholzner being the person best positioned to run as a continuity candidate.
If he ends up running, Sonnenholzner will have to put more effort into distancing himself from Moreno, as the latest CEDATOS poll shows the president’s approval rate at...
Standstills have been the talk of the town since March, but only Ecuador, Suriname and Belize have used them so far.
We look at the similarities and differences between the three cases in order to understand what each country intends to do with them.
BUY Ecuador: Restructuring negotiations are already very advanced and we think the bonds will have significant upside after a deal is closed.
SELL Belize: There is willingness to continue paying after the standstill, but their repayment record speaks for itself.
HOLD Suriname: The outgoing administration negotiated a standstill on their 2023 bond, but we don’t kno...
On Monday 13, two large bondholder groups – which are in control of blocking positions – issued a joint counter-proposal to Ecuador’s opening bid.
The counter-proposal involves a higher face value haircut but conditioned to an IMF agreement. It also involves a more front-loaded interest payment schedule.
Our estimates indicate that Ecuador would have to pay an additional USD 1.87 bn between 2022 and 2027 under the counter-proposal, but would have to pay USD 561 mn less afterward.
We think that the counter-proposal is broadly reasonable and the 2025 and 2030 targets for GFN and debt-to-GDP ratio would rem...
According to the Foreign Trade Ministry, for the period between March 16 and May 24, economic losses related to the pandemic amounted to USD 14.1 bn.
The economy shrank by 2.4% in the first quarter of 2020.
Total losses in tax collection in main activities amount to USD 518 mn.
The Central Bank expects the GDP to contract between 7.3% and 9.6% this year. EMFI Securities estimates a fall of 7.9%.
On Monday, Ecuador announced that it has an agreement “in principle” with a bondholder group in possession of 50% of the total outstanding.
The proposed terms would imply an average recovery value of 49.7 cents on the dollar when valued at a 12% exit yield.
The government would exchange 10 old bonds into 4 new bonds that would feature lower step-up coupons, a moderate 8.9% principal haircut, and principal repayment in 5 equal semi-annual installments.
We think the offer positively reflects the Lenín Moreno administration’s market-friendly approach to the restructuring negotiations.
36 of the 77 eligible countries have applied for the G20’s Debt Service Suspension Initiative (DSSI).
Chinese debt has grown significantly, but has remained highly opaque. The recently released World Bank dataset is a big step forward in this regard.
Countries that would benefit the most from DSSI owe on average 42% of their 2020-2021 and 41.1% of their 2022-2025 debt service to China.
So far, DSSI only extends for payments scheduled for 2020, but there are many voices calling for an extension to 2021.
To put it bluntly, a program of debt relief or a generalized standstill on official debt would go nowhere wit...
In this report you will find:
Background: Legacy in Peril, an assesment of Lenín Moreno's presidential period.
The Word on the Street, a recount of declarations on the restructuring from the administration's allies and enemies.
Moving Forward: Debt Sustainability, our own in-house debt sustainability analysis.
The Offer and the Deal, our expectations for a potential exchange offer and projected recovery values.
On June 3, President Lenín Moreno announced that Ecuador will report a USD 12 bn deficit because of the plunge in oil prices and lower tax collection.
Ecuador’s oil production reached 333 tbd in May, a MoM recovery of 60.2%, but still representing a decrease of 36.8% compared to the same month in 2019.
April exports reached a historical low for at least 15 years, just USD 74 mn (5,261 kb).
While the country has less and less oxygen, the situation forced the government to issue a new presidential decree on May 19 which practically remove subsidies on automotive sector.
We estimate that subsidies expendit...
Low interest rates and the hunt for yields of the last decade has left broad swaths of EMs overindebted and vulnerable.
The first half of 2020 is not yet over and we already have 3 countries in default.
The recent record of most defaults on Eurobonds on a single year was 4 in 2017, so 2020 is not far from setting new records.
Eurobond restructuring processes are usually among the most complicated due to the variety of holders and the different interests they represent.
Suriname, Zambia, Belize, Sri Lanka and Angola are in the most risk to engross the default-statistic for the year.
May was one of those months that feels like a year. We had a default in Argentina, a tense election in Suriname, a deadly pandemic still spreading around the world, and yet, it was a good month for emerging market debt
Our EMFI Core Index went up for the first time in 6 months. The biggest winners were Argentina, Angola and Ecuador, while Venezuela, Suriname and Sri Lanka were among the negative outliers that went against the general risk-on mood
The macro and fiscal situations deteriorated further for all countries covered, and we chronicled the dramatic economic crash in our Country Reports
We’ve been preparing fo...
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.
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.
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, V...
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...
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.
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 Augus...
The Central Bank dramatically updated fiscal figures for the non-financial public sector for 2018 and 2019.
After the changes, the fiscal deficit went from 1.2% of GDP to 3.1% of GDP in 2018, while the primary surplus disappeared (from a 1.3% surplus to a deficit of 0.7% of GDP).
The Ministry of Finance explained that the changes were caused by decentralized autonomous governments, social security entity and Petroecuador.
For 2019, the fiscal deficit was initially estimated at 1.6% of GDP, together with a primary surplus of 1% of GDP.
With the new execution, the fiscal deficit increased to 2.8% of GDP, while the pri...
On April 15, the G20 agreed on a standstill for bilateral debt service during 2020. Nonetheless, the agreement only applies to IDA-eligible countries. The suspension will be NPV-neutral and will involve repayment over 4 years, including a 1-year grace period.
Multilaterals haven’t found a way to implement a similar standstill. In fact, Fitch Ratings warned them that joining in on the G20 standstill could result in rating downgrades if not appropriately compensated by shareholder countries.
On aggregate, official creditors account for almost 90% of the debt of low-income, and 60% of that of lower middle-income countries, b...
The authorities are dealing with low oil prices and lower tax collection while they are also facing a health crisis triggered by the coronavirus outbreak.
The outlook complicated worsened even more after the landslides caused by torrential rains on April 7th that affected two pipelines that jointly transport 96.1% Ecuador’s oil output
Lenín Moreno submitted a draft law that contemplates a temporary contribution from private and public workers. These resources will be used to relieve the crisis.
On April 8th, an official statement where the government requested a postponement in interest payments to their bond...
Two weeks ago, we singled out some early calls for a generalized global debt moratorium in our Global Strategy Viewpoint: Force Majeure. The idea has gained significant traction and is becoming one of the main themes in economic and financial discussion.
While we don’t think a generalized moratorium on commercial bonded debt is likely to succeed, investors should be aware that it is a growing theme and bondholders will probably be under increased pressure to accept attempts at restructuring bond terms.
There are some indications that China is a significant roadblock for the IMF-World Bank initiative for a bilateral debt m...
Minister Martínez has been very emphatic in saying that the country needs to obtain relief from financial pressure for the rest of the year and that retaining access to external financing is a key concern of the administration.
A postponement or outright pardon of 2020 coupon payments would amount to USD 1,680 mn if the coupons on all bonds are included or USD 1,418 mn if the 4 coupons already in grace periods are excluded.
Bonds, trading between 29 and 35 cents on the dollar, are currently pricing in strong expectations of a near-term default with a haircut around 70%. These prices are on average 59% down from barely on...
Ecuador's bonds recovered between 5 and 6 cents per dollar on Monday on the expectation that the proposal to defer payments for the notes of 2022, 2025 and 2030 for a year will prosper.
In the event that the quick proposal advances there would be a significant recovery of the debt from the range from the current values of 22-36 dollars.
Ecuador's bond contracts allow the modification of reserved matters in three ways.
The country can request a collective deferment on coupons that expire this year or seek a grace period for private bonds.
The deadline to obtain a response from the bondholders is next Ap...
The 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 ...
The 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 act...
Our 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 dis...
The 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 categori...
In 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.
Given 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 fue...
February 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 expectabl...
Ecuador's bonds remain the second worst performers of the year amongst sovereign issuers, only behind Lebanon.
ECUADOR 9.5 2030 has plummeted 20.4% YTD, with its yield to maturity increasing 388 bp since last year, going from 10.5% to 14.4% today.
ECUADOR 10.75 2022 shows the highest yield to maturity of the curve with 19.9%, followed by ECUADOR 8.75 2023 with 16.7%, due to the high risks associated with payments from 2022 on.
The accelerated decline in Ecuador’s credit rating and the fall in oil prices in 2020 are the main causes of downward pressure across the curve.
In turn, the credit rating cuts were ...
Ecuador issued a USD 400 mn social bond, which was bought by a Special Purpose Vehicle (SPV) incorporated in Luxembourg. The SPV, in turn has issued two bonds, which are available for trading: ECUASO 0 2035 and ECUASO 2.6 2035.
The zero-coupon bond is junior to ECUASO 2.6 2035 under the joint waterfall payment scheme. Furthermore, the interest-bearing bond enjoys an Inter-American Development Bank (IDB) guarantee, which the zero-coupon bond doesn’t have.
ECUASO 2.6 2035 has a low 3.1% Internal Rate of Return (IRR), on account of its favorable seniority conditions, while ECUASO 0 2035 bond offers a much more attractive 14....