Country UpdateFebruary 05, 2023
- Costa Rica
- Czech Republic
- Dominican Republic
- El Salvador
- Ivory Coast
- Saudi Arabia
- South Africa
- South Korea
- Sri Lanka
- Trinidad And Tobago
Market Pricesel salvador sovereign
|ELSALV 5 7/8 01/30/25||35.65||36.2||6.41||582||+582||2025-01-30|
|ELSALV 5 7/8 01/30/25||46.5||47||52.09||4773||+0||2025-01-30|
|ELSALV 5 7/8 01/30/25||35.85||36.4||6.37||578||+578||2025-01-30|
|ELSALV 6 3/8 01/18/27||39.7||40.25||6.73||576||+576||2027-01-18|
|ELSALV 6 3/8 01/18/27||39.85||40.4||6.86||588||+588||2027-01-18|
|ELSALV 8 5/8 02/28/29||44.9||45.45||7.3||605||+605||2029-02-28|
|ELSALV 8 5/8 02/28/29||38.85||39.4||7.3||605||+605||2029-02-28|
|ELSALV 8 1/4 04/10/32||37.85||38.4||7.59||609||+609||2032-04-10|
|ELSALV 8 1/4 04/10/32||38.15||38.7||7.58||607||+607||2032-04-10|
|ELSALV 7 5/8 09/21/34||34.45||35||7.91||628||+628||2034-09-21|
|ELSALV 7 5/8 09/21/34||31.6||32.15||7.92||630||+630||2034-09-21|
|ELSALV 7.65 06/15/35||36.35||36.9||7.6||595||+595||2035-06-15|
|ELSALV 7.65 06/15/35||36.4||36.95||7.69||604||+604||2035-06-15|
|ELSALV 7 5/8 02/01/41||35.85||36.4||7.77||600||+600||2041-02-01|
|ELSALV 7 5/8 02/01/41||36||36.55||7.75||599||+599||2041-02-01|
|ELSALV 7.1246 01/20/50||35.45||36||7.7||587||+587||2050-01-20|
|ELSALV 7.1246 01/20/50||35.3||35.85||7.7||587||+587||2050-01-20|
|ELSALV 9 1/2 07/15/52||36.15||36.7||8.68||690||+690||2052-07-15|
|ELSALV 9 1/2 07/15/52||38.25||38.8||8.75||697||+697||2052-07-15|
Price Curveel salvador
Market Intelligenceel salvador
This year, Bukele’s political agenda will be centered around the presidential election of February 2024.
We estimate that the overall balance will reach -3.0% of GDP, 500 b.p. lower than the deficit of 2.5.% projected by the government.
The pension reform will allow the government to obtain more financing from the AFPs, which, coupled with the multilateral funding and the SDRs, will be enough to cover the financing needs for this year.
We expect a slowdown in economic activity due to the bleak economic outlook for the US, therefore, we estimate GDP growth of 1.3% in 2023.
Since Bukele took office, budgets have been heavily modified throughout the year, making assessing the original budget pointless to analyze the actual state of public finances.
Although the finance minister described the budgetary macro assumptions as conservative, they seem over-optimistic to us, considering El Salvador’s economic dependence on the United States, which could be on the verge of a recession.
We estimate that the fiscal deficit will decline to - 3.2% of GDP in 2023 from -3.6% in 2022.
Adding amortizations of USD 1,116 mn, we calculate that the financing needs will reach USD 2,174 mn or 6.7% of GDP.&nb...
Bondholders tendered USD 179 mn of ELSALV 23 (22.4% of the outstanding) and USD 433 mn of ELSALV 25 (54.1%).
The government accepted the full tender in the ’25s and USD 133 mn in the ‘23s (74% of the tendered amount), spending the full USD 360 mn allocated for the operation.
In our view, the focus on buying back the ‘25s indicates that the government aims to improve the market’s perception of its mid-term repayment capacity, rather than optimizing the use of available liquidity.
We think the results are bullish as they significantly improve the odds of the government being able to repay ELSALV 25, ...
We estimate that the current account deficit during the second quarter would have reached USD 720 mn, the highest quarterly level in the country's history.
We estimate that the current account deficit will reach 6.8% of GDP in 2022, 1.7 pp wider than in 2021 and the highest deficit in the last eight years.
Given our external outlook, we believe the country will continue to decumulate international reserves, a worrying scenario considering that the funds to repurchase the 2023 and 2025 bonds will be deducted from the SDRs.
We believe that the performance of the external sector variables in real terms up to July reveals...
Despite criticism from human rights organizations for the deterioration of the rule of law, President Bukele maintains high popularity levels among Salvadorans.
In our baseline scenario, we consider that it is very likely that Bukele will run for and win the 2024 presidential elections.
Although a year and a half is an eternity in politics, we believe that Bukele will succeed in gaining international recognition if he is elected for a second presidential term.
We adjust our fiscal deficit forecast to 4% of GDP from 5%, with a primary balance of -0.6% of GDP.
BUY: We revise our fair value estimates to the upside on b...
President Bukele announced a voluntary buyback of ELSALV 23 and 25 at secondary market prices to be carried out in 6 weeks.
Finance Minister Alejandro Zelaya indicated that the government would finance the deal with an existing USD 575mn in IMF SDRs and a USD 200 mn CABEI loan.
Pure cash operations (like the one being proposed) are very rare, as governments normally issue fresh bonds to finance the buyback. Execution below par is also unusual.
The buyback could cost El Salvador USD 600-700 mn, which are adequately covered between the SDRs and multilateral loans.
The exposure of Salvadoran banks to government debt has increased in recent years.
The banking system seems stable in every area: capital adequacy, asset quality, and liquidity.
Liquid assets to deposits reached 27%, the lowest level in the entire region.
The main indicators of financial soundness have deteriorated in recent years.
BUY: Bonds in the belly and long-end shed 7 pts MoM to trade at 33 cents on average. We find prices very attractive, especially given a high likelihood that they will continue receiving a significant number of coupons before a default materializes.
After bouncing up significantly over the past few weeks, ELSALV bonds are shedding 1.6 pts to trade at 35.5-40.0 cents amidst a generalized sell-off in risky assets.
At current prices, we estimate that most bonds need only half a coupon (3 months) to break even once we deduct our expected 36.0-43.4% Recovery Values.
To estimate a fair value for each bond, we formulate 7 scenarios and weight the value of bonds under each by our assessed probabilities.
We find the bonds very attractive on a probability-weighted basis and switch our recommendation to BUY.
Our preference is for ELSALV 29, 34, and 35, as they offer attra...
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.
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.
Although amortizations for this year look low (USD 512 mn or 1.7% of GDP), financing needs amount to USD 2.1 bn (6.9% of GDP).
57% of the financing sources that we estimate for this year correspond to multilaterals.
A 2-year bond offered in the domestic market was undersubscribed, even after important reforms. Therefore, it seems that there is little room to increase internal financing without approving a pension reform.
The government will fully cover its 2022 financing needs using the SDRs allocated last year.
HOLD: Eurobonds lost 2.5 pts over the last month, underperforming in the context of a rebound in EM debt....
The Salvadoran government legalized undercover digital agents, which according to opposition and journalist organizations amounts to the legalization of digital espionage.
Even if the rumors of division inside the ruling party are true, President Bukele has already succeeded in consolidating power around himself.
We believe that the US will impose additional sanctions on Salvadoran officials if the Bukele government continues to delay the extraditions of gang members.
In the current scenario, it seems unlikely that the government can negotiate an agreement with the IMF.
Eurobonds rallied over the past month as Finan...
It is key to follow political events in the US, as well as economic policy decisions that will have a direct impact on El Salvador.
We believe that President Bukele will continue in his quest to concentrate power, further deteriorating the rule of law.
We estimate that the primary deficit will reach -1.5% of GDP, 2.3 p.p. lower than the surplus of 0.8% projected by the government, while the overall balance will close at -5.4% of GDP (vs. -2.5% estimated by the government).
After the economy returns to pre-pandemic levels this year, El Salvador will grow 1.5% in 2022 as the main determinants of growth in 2021 - public spen...
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.
The new draft budget includes an overly optimistic forecast of tax revenues, which are expected to increase by 11.9% (USD 656 mn), jumping to 22% of GDP, 4.5 p.p. higher than the 2020 level.
We estimate that the primary deficit will reach -1.1% of GDP, 1.9 p.p. lower than that projected by the government, and the overall balance will close at -4.3% of GDP (vs. -2.5% estimated by the government).
The Bukele administration will need to find USD 1.75 bn (6.1% of GDP) in financing and reaching an agreement with the IMF would be key to fulfilling that objective.
Nonetheless, we believe the government will not be able to reach ...
Although the finance minister introduced the 2022 draft budget last week, the full details have not been disclosed yet
We do know that expenditures are estimated to be USD 7,967.7 mn (27.8% of GDP), 7.3% higher than the approved budget for 2021 but 3.1% lower than the modified bill.
We calculate that the total revenues in the draft budget will reach USD 6,715.5 mn (23.5% of GDP) and the fiscal gap will amount to USD 1,252 mn or 4.4% of GDP.
We believe that the delay in the publication of the budget jeopardizes fiscal transparency.
HOLD: Eurobonds have been continuously losing ground since April, as Bukele&rsquo...
President Bukele will be able to run for reelection in 2024 after a surprise ruling of the Constitutional Court
The international community has rejected the ruling of the Constitutional Chamber
We believe that allowing presidential reelection using unconstitutional strategies poses a high risk to democracy and the rule of law in El Salvador
The Bukele administration is pushing for constitutional reform, which involves changing 215 of the 274 articles
The reform introduces changes in the presidential term, reduces the waiting time needed to opt for presidential re-election, and establishes popular referendums as a mechanism to modify the Constitution
We do not rule out that Bukele could have the same authoritarian intentions as Hugo Chavez, the late Venezuelan strongman.
We believe that the constitutional reform proposal poses a high risk to the rule of law and creates incentives for the promotion of populist policies and governments
HOLD: Investor expe...
Rumor has it that the Bukele government planned to launch its own USD-pegged stablecoin called “Colon-Dollar” by the end of the year
We believe that a stablecoin in El Salvador would have similar uses to those of Electronic Money in Ecuador
We believe that Bukele’s silence regarding the launch of a stablecoin could be a sign that the plan was discarded
The nationalization of the AFP seems a real possibility.
It is clear that the objective is fundamentally fiscal and confiscatory.
AFPs have a total USD 12.1 bn in AUM, of which USD 7 bn is invested in Pension Investment Certificates and USD 2.3bn in other government securities.
The remaining USD 2.8bn is likely to be appropriated to finance the fiscal deficit.
Nominally, the debt-to-GDP ratio would drop by 20 percentage points, from about 90% today to 70% of GDP.
However, this does not solve the financial unsustainability of the pension system, an adjustment must go through changes in the retirement age and pe...
In less than two months, the new assembly has approved and authorized fifteen loans totaling USD 1,981 mn
The Assembly also approved the issuance of debt securities and loan agreements for a total of USD 1,313.9 million to cover the budget deficit.
We calculate that the primary deficit would be at -3.0% and the overall balance at -6.3%.
With the new financing, the financing gap appears to be covered but the public debt would increase to USD 24.3 bn (or 93.4% of GDP) in 2021.
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 Un...
The latest authoritarian move of President Bukele would drive away from the IMF, which is increasingly promoting conditions of governance in its programs.
Having less access to external financing to cover its financing needs significantly increases liquidity risks
We calculate that international reserves went from covering 3.8 months of imports in December 2019 to 2.4 months in March 2021, below the 3 months recommended by the IMF.
We think that the US would be willing to help El Salvador in exchange for President Bukele making concessions in terms of strengthening the rule of law.
HOLD: The political events of the ...
The new pro-government Legislative Assembly removed the magistrates (incumbents and alternates) of the Constitutional Chamber of Supreme Court and the Attorney General
The international community showed its repudiation to the authoritarian actions by President Bukele
Having the powers in his favor increases the risk that Bukele will bypass the law and somehow allow himself to run for reelection
We believe that the concentration of power around Bukele will make it difficult to reach an agreement with the IMF
In the medium term, if the Salvadoran government cannot access financing from its traditional internation...
The Salvadoran economy contracted 7.9% in 2020
The government’s countercyclical policies increased the fiscal deficit from 2.9% of GDP in 2019 to 10.4% in 2020
Along with Panama and Belize, El Salvador had the worst fiscal performance among Central American countries
We believe the government's approach to the IMF is constructive and see the early start of negotiations as a positive development
HOLD: Although an upcoming agreement could improve liquidity conditions and lower pressure on the domestic market, the sustainability of public finances will remain in question if the agreement does not lead to sign...
The Nuevas Ideas party won a qualified majority (56 of 84 seats) in the Legislative Assembly.
The 262 municipalities were divided between Nuevas Ideas (146), ARENA (37), FMLN (30), GANA (30), PCN (16), PDC (3) and Vamos (1).
We see significant long-term downside risks associated with the weakening of institutions and lower limits to the Executive branch.
The Bukele government will now count on municipalities as another way of managing state resources.
President Bukele is now unrestrained, as the confrontational legislative he has been denouncing since he took office is out of the way.
HOLD: Liquidity remains a...
The Nuevas Ideas party of President Nayib Bukele won in a landslide the legislative and municipal election on February 28.
Up to now, the Nuevas Ideas party would have 56 deputies, which would give it a qualified majority (two-thirds of 84 seats)
Having a qualified majority, the ruling party could approve a new debt issue and appoint the magistrates of the Supreme Court of Justice
Bukele would not be able to amend the constitution to run for re-election in 2024, as this would have to be ratified by the next Assembly between 2024 and 2027.
On average, El Salvador bonds have gone up 15 pts after they rebounded from their October lows, as a more than necessary deal with the IMF has become more than likely.
Market response to Costa Rica can serve as a proxy for what to expect in el Salvador.
Considering EL SALVADOR 32 and COSTA RICA 31 spread since 2019, we see room for further tightening and a normalization of the flat Salvadoran curve, favoring the short end.
We believe that El Salvador will receive a loan like that of Costa Rica, equivalent to around USD 1.4bn.
If the country receives half of the funds from the program with the IMF this year, it will cover 67.9% of its financing needs.
We are cautious about the success of the program due to the populist and authoritarian approach that President Bukele has displayed during his administration.
Our base-case scenario is that the Salvadoran government reaches an agreement with the IMF and can partially implement it within three years.
HOLD: Liquidity is not at its best point, but a deal with the IMF could improve the genera...
The upcoming elections will reduce political risk, but will raise fears of more violations of the rule of law and less fiscal control.
New legislation introduces new limits for LETES emissions, and will pose problems for the government to finance the fiscal gap this year.
The limitations to the local market, and the high financing costs of external emissions, will make it necessary to understand bilateral and multilateral.
However, investors are underestimating the options for an upcoming IMF deal, as shown by current debt yields.
Legislative and municipal elections will take place on February 28.
The ruling coalition would obtain between 54 and 69 deputies, out of 84, handing Bukele a qualified majority in parliament
With the Assembly in Bukele’s favor, the deterioration in public finances is likely to worsen. We estimate that the primary deficit will close at -4.8% and the overall balance at -8.2%
While Covid-19 represents a major source of downside risk, we believe that the Salvadoran economy will continue to recover. We estimate that real GDP will increase by 4.4% in 2021
We are upgrading El Salvador from SELL to HOLD, as despite th...
We estimate that the current account deficit will reduce to -0.8% this year.
Remittance inflows recovered as employment in the United States did.
Biden proposes to combat “endemic” corruption in the Northern Triangle countries: El Salvador, Honduras, and Guatemala.
Biden could approve the extension of TPS but formalizing a path to US citizenship for its beneficiaries requires the approval of the Senate
We maintain our SELL recommendation for El Salvador since we see debt sustainability problems intensifying and also a latent illiquidity risk.
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...
Although economic indicators seem to forecast a fast V-recovery, the future does not look too bright for El Salvador
Five of eight indicators of the rule of law index would have weakened during the Bukele government
The only factor that has improved significantly is order and security, due to the decrease in the homicide rate.
We believe that the deterioration of the rule of law could negatively impact access to financing to El Salvador by multilateral organizations.
SELL: We retain our SELL rating on El Salvador, as we are not constructive on the medium term debt sustainability profile of the sovereign, and we expe...
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
In 2021’s draft budget, revenues are estimated at USD 5,878 mn (5.4% higher than 2020) and expenditures reach USD 7,170 mn (17.4% higher).
The government wants to collect more taxes in a contracted economy, which seems unlikely. It appears that the government inflated revenues estimates.
The central government budget proposes a fiscal deficit of 6% (including pensions).
We estimate that public debt will reach USD 24.6 bn or 94% of GDP in 2021, 1pp more than our estimation of the debt to GDP ratio for 2020.
Debt sustainability looks like an approaching train wreck, and we retain our SELL recommendation on the c...
With Bukele firmly on a spendthrift mode, we expect debt to end the year at 95% of GDP.
The yield curve has shifted up and flattened, indicating increasing expectations of distress.
62.5% of the debt is owed to private creditors, 29.6% is owed to multilateral institutions and barely 2.7% to bilateral lenders.
56.1% of the debt has an interest rate of 6% or above, which puts fiscal revenues under great pressure.
We remain skeptical of Bukele’s willingness to reign down spending, which motivates us to retain our SELL recommendation for El Salvador.
In the first quarter of 2020, GDP fell 0.8% q-o-q.
Public and private consumption cushioned the decline in GDP during the first quarter.
High-frequency output indicators show a gradual recovery as a result of the easing of containment measures in mid-June.
El Salvador seems to have left behind the worst months of the crisis. However, we must be cautious regarding the medium and long term.
Our primary concern with El Salvador relates to a potential sustained deterioration of solvency under Bukele due to an overly loose fiscal policy and weaker constraints to spending.
All indicators of debt profile vulnerabilities are above the upper early warning limit.
The IMF measure (the average of the last three months of the G-spreads of long-term bonds) went from 490 basis points (bp) in March to 943 bp in July.
External financing requirements would be equivalent to 20.3% of GDP and the annual change in short-term debt as a percentage of GDP would have increased 1.3%.
Although these alerts are significant, we do not believe it will translate into a period of financial distress in the short term.
The Salvadoran government has covered 64% of its financial needs for this year and is administe...
Since the onset of the COVID-19 pandemic, several of our EMFI countries have suffered massive repricings all along their sovereign curves.
Recovery has not been homogeneous, and some countries still exhibit inverted yield curves, a traditional indicator of liquidity strains.
We decided to take a closer look at Angola, Sri Lanka and El Salvador, focusing on liquidity and solvency indicators, in order to determine if these inversions present an investment opportunity or in fact are accurately priced.
We like El Salvador's and Angola's front end of the curve, but we stay wary and have a negative outlook on Sri Lanka....
Contrary to the external medium and long term debt, the government does not need the authorization of the Legislative Assembly for the issuance of short-term debt.
Since December 2019, short-term debt has increased by 101%, reaching USD 1,882 mn.
This form of financing has become increasingly expensive for the government. In March, interest rates peaked at 9.48% and dropped to 7.57% in June.
We remain wary of Bukele’s turn to populism and on his souring relationship with the legislative branch.
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.
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.
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.
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.<...
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.
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...
On March 13, Bukele requested approval from the parliament to declare the State of Exception to fight against the COVID-19, even before the first case was detected.
Those who have violated the quarantine have been detained and taken to virus containment centers. To date, there are 2.073 people in containment centers for violating the quarantine.
According to the pollster Mitofsky published on April 4, 97% of the population approves Bukele’s management of the coronavirus crisis, 16 p.p more than in the previous survey.
The Assembly also suspended the application of the Fiscal Responsibility Law, authoriz...
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...
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...
With a high probability of a recession in the coming months, oil prices would remain at low levels, which would represent an important benefit for El Salvador.
We estimate that the price effect will be combined with a negative effect on imported volume due to the next global recession.
In 2020, the oil bill would drop to USD 822.9 mn, which would represent savings of USD 671 mn compared to the 2019 oil bill.
El Salvador's trade balance is highly dependent on the United States economy.
In a global recession scenario, we believe that Salvadoran goods exports will decrease by USD 435 mn (a drop of -7.3%). We estima...
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...