Country UpdateNovember 20, 2020
- Costa Rica
- Czech Republic
- Dominican Republic
- El Salvador
- Ivory Coast
- Saudi Arabia
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- Sri Lanka
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Market Priceslebanon sovereign
|LEBAN 8 1/4 04/12/21||15.75||16.25||1367.02||35284||+0||2021-04-12|
|LEBAN 6 1/4 05/27/22||15.15||15.65||197.00||13230||+0||2022-05-27|
|LEBAN 6.1 10/04/22||14.90||15.40||143.03||11858||+0||2022-10-04|
|LEBAN 6 01/27/23||14.60||15.10||129.06||9619||+0||2023-01-27|
|LEBAN 6.4 05/26/23||14.45||14.95||117.57||9078||+0||2023-05-26|
|LEBAN 6.65 04/22/24||14.65||15.15||82.19||7783||+0||2024-04-22|
|LEBAN 6 1/4 11/04/24||14.45||14.95||71.96||6780||+0||2024-11-04|
|LEBAN 7 12/03/24||14.60||15.10||79.47||7608||+0||2024-12-03|
|LEBAN 6.2 02/26/25||14.75||15.25||69.15||6279||+0||2025-02-26|
|LEBAN 6 1/4 06/12/25||14.55||15.05||69.30||6537||+0||2025-06-12|
|LEBAN 6.6 11/27/26||14.55||15.05||59.35||5705||+0||2026-11-27|
|LEBAN 6.85 03/23/27||14.65||15.15||54.45||5003||+0||2027-03-23|
|LEBAN 6 3/4 11/29/27||14.55||15.05||55.73||5444||+0||2027-11-29|
|LEBAN 7 03/20/28||14.30||14.80||49.91||4123||+0||2028-03-20|
|LEBAN 6.65 11/03/28||14.50||15.00||46.72||5104||+0||2028-11-03|
|LEBAN 6.85 05/25/29||14.60||15.10||51.98||5006||+0||2029-05-25|
|LEBAN 6.65 02/26/30||14.50||15.00||46.25||4546||+0||2030-02-26|
|LEBAN 7 04/22/31||14.50||15.00||44.21||5097||+0||2031-04-22|
|LEBAN 7.15 11/20/31||14.20||14.70||44.00||5365||+0||2031-11-20|
|LEBAN 7 03/23/32||14.35||14.85||44.65||4251||+0||2032-03-23|
|LEBAN 8.2 05/17/33||14.10||14.60||47.81||6066||+0||2033-05-17|
|LEBAN 8 1/4 05/17/34||14.05||14.55||47.87||6299||+0||2034-05-17|
|LEBAN 7.05 11/02/35||14.90||15.40||40.44||5132||+0||2035-11-02|
|LEBAN 7 1/4 03/23/37||14.90||15.40||42.61||4417||+0||2037-03-23|
Market Maplebanon sovereign
While the Lebanese government remains mired in political conflict, the economy continues to decline.
The monthly economic activity index dropped -47.8% in June, the largest drop recorded so far.
International reserves have fallen -32.3% YTD.
The exchange rate increased 290% and YoY inflation exploded from 6% in December of last year to 131% in September.
HOLD: Bonds continue to decline as Hariri struggles to consolidate his new administration.
On October 22, Hariri was appointed as Prime Minister, one year after the beginning of massive anti-government protests
Hariri was backed by the Shiite group Amal of Nabih Berri, who did not allow the formation of the Adib government less than a month ago
Hariri did not have the support of the main Christian parties, the Free Patriotic Movement and Lebanese Forces.
The return of Hariri could bring some reforms, but it does not seem that he will make the profound reforms that a technocratic government would undertake.
HOLD: The catastrophic economic situation and uncertain timeframe for a restructuring limit the...
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
On September 26, Mustapha Adib announced his resignation as PM-designate after he failed to form a government.
Macron gave Lebanese politicians four to six weeks to implement the roadmap proposed by France
Macron said that he did not contemplate imposing sanctions for now
Macron's threats are also losing credibility
We continue to have as a baseline scenario the formation of a government in Lebanon, but the scenario of a civil war or a failed state is gaining strength.
To push for a change of government, France is betting on dialogue, while the US prefers sanctions.
International pressure seems to be well geared towards making the necessary changes internally.
In political terms, the internal pressure is so far insufficient as control of parliament remains in the hands of Hezbollah and its allies.
We believe that as time passes, the pressure will grow and the political elite will be forced to transfer power to get the funding required.
HOLD. Current low cash prices may seem attractive at a first glance but we choose to keep on monitoring developments going forward
Under high uncertainty, we consider three political scenarios: 1) the parliament elects a new prime minister, 2) early parliamentary elections without changes in the electoral law, and 3) early elections with a new electoral law.
The first scenario is the one established by the constitution, it would represent the fastest route political change and might face the least political resistance
The second would take at least six months according to experts. However, the current electoral law basically allows the same actors to be elected, strengthening the grip of the ruling elite on power.
The third scenario is the one d...
Lebanese Prime Minister Hassan Diab resigned today – alongside the remaining members of his cabinet – 6 days after the Beirut port blast, which left more than 6,000 injured and 220 dead.
According to the constitution, the new cabinet must be appointed by the current government, which means that political tensions would continue.
An alternative to allowing elections to take place is for parliament to decide to pass a law to shorten its own term or for all members of parliament to resign
The exchange rate has depreciated -80.5% since October 2019. Currently, the parallel exchange rate is 530% higher than the official rate. In May, year-on-year inflation peaked at 56.5%
We estimate Lebanon's economy will drop 20,9% this year. Unemployment exceeds 30% and poverty would increase by 50%, according World Bank
On July 2, Parliament Vice President Elie Ferzli urged Hassan Diab to allow the formation of a new government and said that the former Prime Minister was key to the union of the Lebanese
After Ferzli's statements, Hariri said that he had the conditions to return to the post of Prime Minister but t...
The Banking Association proposes to avoid default on internal debt to restore the confidence of foreign depositors. We don't think this is a strong argument, investor confidence in Lebanon was already falling before the government announced its debt default in March.
The Banking Association argues that avoiding default on internal debt would prevent further collapse of the economy. However, the researchs cited in the document do not show causality between default of the domestic debt and GDP growth.
We do not positively evaluate the recovery plan proposed by the government, because it does not promote economi...
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.
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 government's economic plan calls for an L-shaped recovery.
The biggest change in the economic plan is the devaluation of the exchange rate from 1507.5 LBP/USD to 3500 LBP/USD.
The fiscal result in 2024 would be worse than in 2019, the pre-crisis phase.
According recent cases, the IMF could lend exceptional financing of USD 7.8 bn.
First indications of the restructuring proposal that the government could present to bondholders.
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...
Since October, the parallel exchange rate has increased from 1,675 LBP/USD to 2,850 LBP/USD, 89.1% higher than the official rate that remains at 1507.5 LBP/USD.
On April 3, Central Bank approved that depositors with accounts below USD 3,000 can withdraw their savings at a "market rate," published daily via an electronic platform.
The growth of indebtedness and the attraction of deposits in foreign currency began to be insufficient to cover the current account deficit that has exceeded 20% of GDP since 2011
In addition to the drop in international reserves, the depreciation of the exchange rate has been explained...
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 ...
Real GDP growth slumped to -6.9% last year. In 2020, real GDP could contract by 12% as the dollar shortage puts a massive drag on nonfuel imports.
The current deficit account reached 26.9% of GDP in 2019.
In January 2020, foreign reserves were at USD 29 bn, of which USD 22 bn are liquid, but USD 18 bn of those are mandatory reserves. Lebanon’s central bank only had USD 4 bn (6 weeks of imports) in freely available liquid assets.
The government proposed that public sector foreign currency debt payments should be compatible with current account dynamics and foreign exchange reserve accumulation objectives.
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 2017, Central Bank (CB) implemented a financial engineering plan offering commercial banks appealing schemes to attract foreign currencies.
Under this scheme, deposits with CB grew from USD 89.8 bn in 2016 to USD 155.0 bn (72.7% growth) in October 2019 when current crisis started.
After the implementation of financial engineering, total assets of the Lebanese banking sector grew remarkably, from USD 204.3 bn to USD 262.8 bn.
As banks increased their deposit position with the CB, consumer deposits began to decline, which made the system unsustainable.
On December 2019, banks started offsetting the...
As March 9 approaches, the market has become increasingly worried that Lebanon will not meet the USD 1.2 bn principal payment on the LEBAN 6.375 2020 bond due on that date.
CDS markets are ominous; under the assumption of a 40% recovery value, the spread on the 6-month contract implies a 93.11% probability of default, which rises to 98.86% for the 1-year contract.
Per Bloomberg, top 5 investors have blocking positions in five bonds: the three 2020 bonds, the 2021 bond and LEBAN 6.1 2022. The concentration of holdings is especially intense in the 2020 bonds.
We think there would be little logic in paying LEBAN 6.375 2020 j...
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...
Lebanon's debt continues to collapse as the Diab government debates whether to meet the payment of LEBAN 6.375 2020, which has its USD 1,200 mn maturity coming due on March 9, or delay a decision until after it has agreed to an IMF reform and restructuring program.
We can take the recommendations of the last Article IV published at the end of 2019 as an approach to the most probable measures the IMF would recommend to Lebanon in a rescue plan. The IMF would recommend fiscal adjustment measures such as eliminating subsidies to the electricity sector, implementing revenue measures and seeking financing from international donors.
Total debt service on international bonds for the first half of 2020, including coupon payments, sums up to USD 3.6 bn. The largest maturity is scheduled for March 9, when the USD 1.2 bn principal on LEBAN 6.375 2020 comes due.
The local banking sector high exposition to Lebanon’s foreign currency sovereign debt places the banking system at the very center of Lebanon’s dilemma, and means a hard-default would likely involve simultaneously aggravating the debt, currency and banking crisis.
CDS spreads are currently pricing-in a default probability close to 50% within the next six months. Over a year, this rises to 68%...
Lebanon's Prime Minister Hassan Diab, elected on December 19 -almost two months after Saad Hariri's resignation- is in the process of forming a cabinet. In the recent history of Lebanon, government formation takes between 6 and 9 months. However, the economic crisis and the social outbreak that the country is experiencing makes necessary a rapid formation of a new government.
Demonstrators, who have been in the streets for 3 months, demand that a technocratic government be formed without the inclusion of the political elites that currently govern. Diab proposed the formation of an 18-member technocrat cabinet in the first wee...
Today was held the meeting of the International Support Group of Lebanon (ISGL) in Paris.
The group emphasized the need for an "efficient and credible" government to be urgently formed to implement economic and political reforms. This statement follows the withdrawal of Samir Khatib candidacy for the prime minister’s post on Sunday. Under these conditions, Saad Hariri, who resigned from the post of Prime Minister on October 29, resurfaces as a candidate for Prime Minister.
On the other hand, members of the international community stated that the results of the CEDRE Conference, approved by the Lebanese authoriti...
Today, the Central Bank of Lebanon announced a cut to interest rates on dollar and local-currency deposits to 5% and 8.5%, respectively, starting on December 5.
The cut on interest rates provides relief to the banking system by substantially reducing its foreign currency needs. The measure ends an era of high rates on bank deposits, which had been used to attract dollars to Lebanese banks. The foreign currency inflows helped Lebanon to cover its external gap, but at a cost that ultimately became unsustainable.
The measures will last six months. The bank seeks to gain time until a new government is formed and more aggressive mea...
Today, a government official under condition of anonymity reported that the Ministry of Finance ordered to paid back a Eurobond worth USD 1.5 bn that was scheduled to mature Thursday. The market doubted that this payment would be made given the country is amid the worst financial, social and political in three decades.
The payment of this bond aims to postpone a restructuring or refinancing process, which in current situations seems inevitable. The next bond payment is scheduled for March, when a USD 1.3 bn Eurobond is due.
On the other hand, the deputy secretary general of the Arab League, Hossam Zaki, arrived in the country t...
The Lebanese banks reopened on November 19, after agreeing to establish temporary controls on US dollars withdrawals that include a USD 1,000 weekly ceiling and restrictions on wire transfers abroad. This measure is a consequence of the uncertainty reigning in the country due to the economic and political crisis. The Institute of International Finance (IIF) said that deposits decreased by more than USD 10 bn since the end of August. Half of this had been removed from the country and the other half remained at home.
On November 11, during a press conference, the governor of the Central Bank of Lebanon, Riad Salameh, assured that measures had been taken to safeguard the deposits and the central bank has the ability to preserve the stability of the Lebanese pound.
The governor denied the possibility of capital controls being established "because Lebanon depends on the free movement of money."
Salameh also informed that international reserves including Eurobonds amount to USD 38 bn. The reserves have decreased significantly to defend the exchange rate. In July, international reserves stood at USD 50.7 bn.
Bloomberg sources reported that the issuance of USD 2 bn Eurobond would be delayed due to the situation in the country and that the Central Bank is certain that it will be able to meet the next November-end commitment. On November 28, the country will face a USD 1.5 bn payment of the LEBAN 11/28/19 bond maturity.
On the other hand, in a televised address on October 31, President Michel Aoun announced his support to the conformation of a technocrats transition cabinet. However, the delay in the conformation of a transition cabinet could postpone the approval of the 2020 budget. The budget, which includes austerity measures, is one of ...
Lebanese Prime Minister Saad al-Hariri resigned today – alongside the remaining members of his cabinet – after 13 days of nation-wide protests demanding he step down. On October 20, four ministers had already resigned, due to the significant political turmoil in the country.
In two weeks, protests evolved into a general outcry over corruption and the ineffectiveness of the authorities in addressing the economic crisis, which prompted the executive to announce an expansion of social spending. This failed to appease the protests, forcing the PM to resign.
On October 21, the presidential cabinet approved the 2020 budget, just one day before the constitutional term to submit it ended. The 2020 budget estimates a deficit of 0.6% of GDP for next year.
In response to the protets, Prime Minister Saad Hariri held a press conference to present the budget and a series of measures against corruption. Hariri announced that the salaries of top officials, including legislators and members of parliament, will be cut in half.
On October 10, the presidential cabinet resumed discussions over the 2020 budget. Communications Minister Jamal Jarrah said the cabinet will send the 2020 budget to the parliament by October 22 at the latest, in accordance with the provisions of the constitution. Jarrah said they are working on the electricity plan, which aims to cover Lebanon’s electric generation deficit of approximately 1,500 megawatts by 2020, which contributes between USD 1.5 bn and USD 2 bn to the budget deficit.
On October 1, the credit rating agency Moody's maintained Caa1 rating on Lebanon's debt. However, Moody’s warned of a possible downgrade in the next three months unless there are positive changes in the country's financial situation. Moody’s argued that the review is a consequence of the “the recent significant tightening in external financing conditions and the reversal in the bank deposit inflows that are essential in enabling Lebanon to meet the government's financing needs."
On September 18, during the presentation of 2020 draft budget, Finance Minister Ali Hassan Khalil said that "very soon" they will begin to taking steps in order to issue new bonds in foreign currency worth around USD 2 bn.
In that sense, on November 28, the country has to pay USD 1.5 bn of the LEBAN 11/28/19 bond. The country's media have reported that the Prime Minister would be heading to Saudi Arabia to ask for financial support, in the form of investment in an upcoming bond issue.
On September 2, Prime Minister Saad al-Hariri, after a meeting between government officials, which included the presence of President Michel Aoun and the president of the chamber Nabih Berri, left the country in a state of economic emergency to rapidly address public finance reforms. "This difficult economic situation requires us to take rapid action, such as ending the budget of time and reducing fiscal deficit," says Hariri.
On August 23, Fitch lowered its credit rating for dollar-denominated long-term bonds from B- to CCC. Earlier this year, Moody's Investors Service had already reduced Lebanon's rating from B3 to Caa1 with a stable outlook.
Meanwhile, S&P maintained the short and long-term debt rating in local and foreign currency in B- / B with a negative outlook, indicating that Lebanon's rating could downgrade in the next 6 to 12 months.
On August 9, Prime Minister Saad al-Hariri reported that the cabinet will meet this Saturday, August 10, for the first time in the last five weeks. After two advisers to the government minister, Saleh al-Gharib, died in a shooting in the Chouf Mountains on June 30, which generated a political conflict with Druze leader Walid Jumblatt and his Christian and Druze adversaries who are aligned with the Shiite group Hezbollah.
On July 2, an International Monetary Fund (IMF) mission concluded its visit to Lebanon as part of its biannual review of Article IV. The delegation acknowledges the government's effort to implement reforms that allow Lebanon's economy and public finances to recover. However, they conclude that additional fiscal reforms are necessary to achieve the objective fiscal deficit proposed by the government.
The Lebanese economy has slowed significantly in recent years. In 2016, the GDP increase was 1.6%. In 2017 the growth was 0.6% and last year it was just 0.2%. Likewise, Lebanon is dragging years of fiscal deficits that have presse...