Country UpdateNovember 30, 2020
- Costa Rica
- Czech Republic
- Dominican Republic
- El Salvador
- Ivory Coast
- Saudi Arabia
- South Africa
- South Korea
- Sri Lanka
- Trinidad And Tobago
Market Pricessri lanka sovereign
|SRILAN 6 1/4 07/27/21||89.35||89.85||24.33||2410||+288||2021-07-27|
|SRILAN 5 3/4 01/18/22||80.45||80.95||26.62||2640||+264||2022-01-18|
|SRILAN 5 7/8 07/25/22||73.10||73.60||26.94||2671||+255||2022-07-25|
|SRILAN 5 3/4 04/18/23||68.25||68.75||23.86||2362||+191||2023-04-18|
|SRILAN 6.85 03/14/24||64.50||65.00||22.62||2233||+176||2024-03-14|
|SRILAN 6.35 06/28/24||64.45||64.95||20.83||2052||+145||2024-06-28|
|SRILAN 6 1/8 06/03/25||63.15||63.65||18.43||1807||+111||2025-06-03|
|SRILAN 6.85 11/03/25||62.40||62.90||18.81||1841||+118||2025-11-03|
|SRILAN 6.825 07/18/26||61.15||61.65||18.01||1755||+79||2026-07-18|
|SRILAN 6.2 05/11/27||58.90||59.40||16.82||1630||+95||2027-05-11|
|SRILAN 6 3/4 04/18/28||58.95||59.45||16.51||1593||+91||2028-04-18|
|SRILAN 7.85 03/14/29||59.55||60.05||17.10||1647||+72||2029-03-14|
|SRILAN 7.55 03/28/30||59.10||59.60||16.12||1543||+71||2030-03-28|
Market Mapsri lanka sovereign
Yield Curvesri lanka
Market Intelligencesri lanka
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.
The fiscal deficit has worsened because of the contraction in economic activity and the tax cuts that the government applied by the end of 2019.
Tax revenues deteriorated markedly, falling by 1.6 percentage points (pp) of GDP compared to last year and reaching just 3.8% of GDP during the 1H-2020.
EMFI Securities expects that the debt-to-GDP ratio will close the year at 95.6%.
Sri Lankan authorities see China’s syndicated loans not only as an alternative to IMF financing but also as an option to reduce their reliance on sovereign debt issuances.
SELL: We deem the risk-reward to still be on the downside and 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
The currency swap line established with the Bank of India allowed Sri Lanka to replenish international reserves to USD 7,403 mn in August.
Although the government is trying to implement an “India-first” approach, we think that it will be difficult not to rely more on China as the country faces large debt repayments next year.
In the second quarter, tourism earnings plummeted to zero due to the closure of borders and international flights.
The country saved almost USD 687 mn in oil imports during the 1H20 compared to last year.
SELL: Solvency and liquidity indicators continue to worsen, and we ...
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...
The primary deficit will widen to 1.9% of GDP in 2020 (from 0.8% of GDP in 2019), mainly explained by weak revenues and higher expenditures.
General Government’s gross financing needs amount to USD 14.8 bn or 17.8% of GDP.
Thanks to a repo facility with the FED and a currency swap line with the Bank of India, the country achieved to cover 51% of its financing needs.
Sri Lanka’s debt burden is reaching unsustainable levels at 91.1% of GDP in April 2020, from 86.8% in December of 2019. Most of the new debt has been issued in the domestic market.
SELL: Both our solvency and liquidity indicators are flashing...
The solid parliamentary victory of the Rajapaksa family predicts times of greater political stability
Recent plans to increase government liquidity with the Fed and India have gone in the right direction to reassure the market
But only the SRILAN 6.25 2020 bond seems to be safe. Solvency problems remain significant.
We see the main risks of the debt: The high financing needs, short-term maturities and the fall of the main sources of income
The ruling party, SLPP, won a nearly two-third majority in Parliament, favored by a fractured political opposition.
The second political party that follows the ruling party in Parliament is now the SJB with 24% of the seats.
The political victory of the SLPP could increase China's influence in Sri Lanka, given the good relations between the Rajapaksa and the Asian country.
It is likely that the SLPP-led government will rely more on bilateral credit than IMF financing.
Sri Lanka financing shows little reason for optimism even though it seems likely they will pay in October.
The coronavirus crisis has led to an increase in financing needs, which are set to reach 8.5% of GDP this year.
Debt has become unsustainable and reserves have fallen a third in a year.
The sustainability of Sri Lanka’s debt is largely in the hands of China, its largest creditor.
We don’t like the risk-reward balance in the 2021 and 2022 bonds.
The monetary policy easing is not translating into an increase of private credit, instead, the banking system is channeling resources to the government.
The state of the financial system remains sound, but Basel III indicators of the banking system have started showing signs of deterioration.
Capital requirements ratios decreased slightly in Q1-2020 and non-performing loans continue to increase.
The FX rate seems to be under control, the government applied restrictions to imports to limit the FX demand and the reduction of international reserves.
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....
The process of defaulting and restructuring usually involves a sharp spike in yields just before the credit event.
Then yields lose their economic meaning and only prices make sense, as they turn into a summary of market expectations for the recovery values.
This period ends when an exchange takes place and the old bonds are replaced by new bonds with a given exit yield
One year after the agreement, yields fall on average 4.1 pp from 12.6% to 8.5%.
This shows that there is potential to pick up price gains by entering a credit just after restructuring, and waiting for spread compression during the first year.
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...
The maturity structure of domestic debt has worsened so far in 2020.
Most of the domestic debt issuances come from short and medium-term instruments.
The Central Bank was the biggest buyer of government securities in the domestic debt market in March.
The funds raised through domestic debt issuance during the first half of 2020 were lower than those of last year.
Solvency and liquidity indicators look bad across the board, and we find even the 2020 bond unattractive at current prices.
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.
With the current potential financing sources, we estimate that Sri Lanka will cover just 43% of its financing needs.
The trade deficit widened in February due to higher imports.
High uncertainty about another COVID-19 outbreak could compromise the tourism sector recovery.
Solvency and liquidity indicators look bad across the board, and we find even the 2020 bond unattractive at current prices.
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.<...
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...
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...
Sri Lanka faces liquidity pressures this year, GFNs sum up to USD 14 bn or 17.4% of GDP.
Most of the principal payments coming due this year are from domestic debt (6.7% of GDP), mainly of short-term debt
External debt principal payments amount to USD 1 bn (1.2% of GDP), which mature in October
We expect that Sri Lanka will rely more on multilateral and bilateral creditors to cover its external funding needs
In the current financial and economic context arising from the pandemic, emerging markets liquidity risk must be watched closely and we believe Sri Lanka is very vulnerable in this regard.
Sri Lanka's ...
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 coronavirus outbreak is having two different effects in Sri Lanka’s economy.
Recently oil prices slump could reduce oil import bill by USD 1,587 mn, if the government increase slightly the oil imports volume and Brent oil prices average USD 39.7/bl during 2020.
This positive effect could compensate the revenues fall in tourism and transport from the current account.
During 2020, we expect travel and transport exports to fall 18% and 5% YoY, respectively.
These imply a revenue loss of USD 712 mn, if the international flight restrictions and quarantine are lifted in May 2020 and both sectors start to recover...
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...
Tax revenues started to weaken since the 2018 political crisis.
The primary balance turned to a deficit of 0.8% of GDP during the first seven months of 2019
The Easter Sunday attacks in April 2019 slowed down economic growth, and the government increased expenditures to boost the economy.
Central government external debt in the long-term increased 9% to reach USD 35,015 mn in the third quarter of 2019 compared to the same of 2018.
We expect further deterioration in the primary fiscal balance for 2019 and 2020.
The Budget for 2020 is expected to be approved after the new Parliament takes office in May.
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...
During the second quarter of 2019, the economy was hit by the Easter Sunday terrorist attacks. GDP grew at a slower pace of 2%, from 4% in the first quarter of 2019. GDP grew 3% y-o-y in the third quarter, the recovery is explained by a stronger domestic demand.
After the decline of 71% (y-o-y) in May 2019 caused by the terrorist attacks, tourists arrivals started recovering gradually, with the decline moderating to 4.5% (y-o-y) in December. Authorities’ efforts to normalize security conditions explained the stabilization.
Debt payments of 2019 were fully financed by international bond issuances in March (USD 2.4 bn...
The fiscal deficit could reach 7% of GDP in 2019 due to higher electoral spending and the fall in revenues due to Easter Sunday attacks, Finance Minister Mahinda Rajapaksa said Tuesday in a statement. Sri Lanka expects to reduce the fiscal deficit in the medium term to -4%.The figure implies a significant increase of the 2.2% deficit target by April-end 2020 presented in the provisional budget approved by parliament on October 23.
The deterioration in the fiscal gap is also a consequence of the fiscal stimulus measures announced last week by Mahinda Rajapaksa that had been promised during the election campaign of Gotabaya Rojapaksa. ...
On November 4, Central Bank Governor Indrajit Coomaraswamy submitted his resignation and announced he will leave office on December 20. Mr. Coomaraswamy said his decision had nothing to do with the political change that brought Rajapaksa family back to power.
Police Officer Nishantha Silva, who handled the investigations against Mahinda Rajapaksa's previous government, fled the country on Sunday. It is believed that Silva was afraid of reprisals from the new government, as he was accused of conducting political motivated investigations when the current administration was in the opposition.
The political power of the Rajapak...
On November 16, a former defense chief, Gotabaya Rajapaksa, won the presidential elections by a wide margin. Mahinda Deshapriya, Chief of the Electoral Commission, announced the victory of Rajapaksa with 6.9 mn votes (52.3% of votes), against Sajith Premadasa of the ruling party, which obtained more than 5.5 mn (42.0% of the votes). The electoral turnout was high and stood at 80%, however, it was 1.5 points lower than in the last presidential election.
After the election results were announced, Finance Minister Mangala Samaraweera resigned from his position. Samaraweera argued that he had lost his popular mandate after the defeat of ...
On November 14, Elections Commission (EC) Chairman Mahinda Deshapriya said presidential campaign ended on Wednesday, urging the candidates to remove all posters from the country. The EC asked social media sites to remove all paid or sponsored political advertisements. The Commissioner estimated the total cost of the Saturday Presidential Election to reach nearly LKR 7.5 bn (USD 4.6 mn).
On Saturday November 16th, 16 million people will be voting for a new president. The former Defense Secretary Gotabaya Rajapaksa and the current Housing Minister Sajith Premadasa are the leading candidates.
Elections in Sri Lanka allow voters to...
Today November 6th the Government issue Treasury Bills for LKR 20 bn (USD 110.75 mn) through an auction. The Central Bank announced that T-bills have three different maturities: 364 days (LKR 6.79 bn), 182 days (LKR 7.44 bn) and 91 days (LKR 5,77 bn) The settlement will be on November 8th. The average yield for the 364-Days T-Bill was 8.41%, while the yield of the 03-month T-Bill was 7.67%.
Both today and October’s issuances aims to cover the fiscal gap, since the country’s performance has been affected by the Easter bombings and 2018 political crisis.
The primary fiscal target for 2020 (a surplus of 0.7% of GDP) co...
On October 23th, the parliament passed unanimously a provisional budget to be spent in the first four months of 2020. The provisional budget targets a fiscal deficit of 2.2% of GDP by end-April 2020.
Spending is estimated to reach LKR 1.47 tn (USD 8.11 bn), while government revenue is expected to stand at LKR 745 bn (USD 4.02 bn). However, in the bill the Finance Minister Mangala Samaraweera requested permission to stir up LKR 721 bn as loans.
It is expected that the Parliament elections will be held next year, when the new president takes office. The new government could pass its budget draft to a recently elected p...
The current president of Sri Lanka, Maithripala Sirisena, said on October 7 that he will not run in the next presidential elections to be held on November 16. 35 candidates presented their candidacies, with Gotabaya Rajapaksa being the front-runner. The number of presidential candidates is a record, the previous top was 22 in 2010 election.
Sirisena chose not to face Rajapaksa in the presidential race, which isn’t surprising due to the breach of the promises he made at the beginning of his term.
Among the candidates are two Buddhist monks, four Muslim people, two Tamils and a woman. It is probable that in the coming...
On September 27, Fitch Ratings reported its decision to maintain unchanged the rating of Sri Lankan sovereign debt at “B” with a stable outlook. The agency said the rating reflects high government debt and contingent liabilities, a challenging external financing profile and moderate economic growth.
Fitch has revised its growth forecast for 2019 to 2.8%, after having estimated 3.6% in December 2018, due to the negative impact of the April 2019 bombings on tourism, which represents approximately 5% of the GDP
For its part, the IMF revised its growth projections for the country's economy, from 3.5% to 2.7% in 2019...
During the second quarter of the year, the economy grew 1.6% year-on-year, according to the figures of Sri Lanka’s Census and Statistics Department (CED) published on September 18. In the first half of the year, the year-to-date growth stood at 3%. This figure is 0.6 percentage points lower than in the same period of last year, when the economy grew by 3.9%.
These figures represent a slowdown in the country's growth. However, the results are better than market expectations, given that lower growth or even a contraction was expected after April terrorist attacks, where around 260 people died.
On the political side, the...
The arrivals of tourists to Sri Lanka contracted 28.1% in August compared to the same month of the previous year. This would be the fifth month in a row that negative variations are recorded, after Easter bombings which left more than 250 people dead and 500 wounded, including 44 foreigners of more than 14 nationalities.
According to the figures published by the Tourism Development Authority of Sri Lanka, 143,857 people entered in August, which implies a decrease of 28.3% year-on-year. However, compared post-attack months, it is a recovery.
Meanwhile, after the surprising rate cut by the Central Bank, the local currency has bee...
On Friday, August 22, the Monetary Board of the Central Bank of Sri Lanka (BCSL) decided to cut the monetary policy rate by 50 basis point, according to the press release published a day after.
The permanent deposit facility rate (SDFR) and the permanent credit rate (SLFR) are now at 7% and 8%, respectively. This is the second rate cut in the year after May’s adjustment.
The Monetary Board based its decision on the analysis of the situation of both global and domestic outlook. On the domestic side, they expect this policy to contribute to a greater momentum of the economy in a context of low inflation, which is expected t...
Sri Lankans, angered by the Government’s inability to prevent the Easter Sunday terror attacks that killed more than 250 people, want a strongman back in power who can guarantee their safety and bring back economic growth.
The Rajapaksa brothers, Gotabaya and Mahinda, were credited with bringing peace to Sri Lanka in 2009 by defeating the Tamil Tigers in a brutal end to the 26-year-long Civil War between the Sinhalese Buddhist majority and minority Tamil groups. Gotabaya was the Defence Secretary at the time and Mahinda the nation’s President.
The country’s Constitution is modelled on the French system of gove...
On June 3, 2016, the IMF approved an arrangement under the Extended Fund Facility (EFF) for Sri Lanka for an amount of USD 1.5 billion. The funds will be used to support the country in the context of deterioration of its external accounts.
Originally, the financial rescue program was of three years but recently, on May 3, 2019, the agency approved a one year extension of the agreement and now it will conclude on June 2, 2020. So far, the resources disbursed amounts USD 1.155 billion.
The perspectives of the IMF are encouraging despite the risks described. The Fund estimates that GDP growth will accelerate again and it will clos...