2023 will be marked by one of the biggest challenges for president Erdogan with general elections scheduled for June 18.

We are cautiously optimistic as this is the best chance for the opposition to win, although still face the challenge to name the proper candidate to convince the population that he will be the solution to the current situation.

Fiscal figures are set to deteriorate ahead of the populism measures under this electoral context, together with the KKM payments. We expect a fiscal deficit of 4.9% of the GDP and a primary deficit of 1.9%.

The macroeconomic outlook is challenging, considering that we are expect...

Turkey managed to tap international markets for a USD 1.5 bn Eurobond issuance, the 2nd of the year.

The Eurobond was issued at USD 99.454 cents on the dollar with a 9.875% coupon, to yield 10%.

While the issuance comes in an adverse international environment, we don’t see solvency as being in risk and regard the shoring-up of external liquidity as an overall positive step.

We maintain our buy recommendation as Turkey’s curve looks attractive given the country has a sufficiently good liquidity position and is under no solvency threat, at least in the short term.

However, the economy will remain under pre...

While inflation seems to be far to stop continues climbing, fiscal figures have shown surprising resilience in the first nine months of the year.

Once revenues and expenditures are adjusted by inflation, it can be seen that they have increased by 15.0% and 12.1%, respectively.

Nevertheless, pre-electoral spending spree is about to start, with the newly announced state-subsidized national housing program joining other populist initiatives.

We believe that the fiscal deficit will increase from 3.6% of the GDP this year to 4.9% in 2023, while the primary deficit will increase to 1.9% of the GDP from 1.2% this year.

BUY...

GDP grew by 7.6% in the second quarter thanks to stronger exports and household consumption, driven by higher inflation expectations.

Household consumption accounts for over half of total output, and public policy has focused on increasing it, fueling inflation to its highest level in 24 years.

Considering the inflationary pressures and rising concerns over the possibility of a recession in Europe, we believe that the Turkish economic growth will slow down.

The capacity utilization rate of the manufacturing industry and the industrial production index already show a loss of momentum, which we believe will continue until y...

July’s trade deficit came at USD 10.7 bn (1.3% of GDP), adding up to an accumulated USD 62.2 bn (7.5% of GDP) so far in 2022 (a 143.7% YoY increase).

So far this year, the Lira has depreciated 36.6% and the authorities continue to turn a blind eye to the underlying fundamentals.

Further FX interventions risk putting pressure on international reserves, which we estimate at USD 112.5 bn in gross terms and USD 20.6 bn in net terms.

The country is likely to receive a Rubble-denominated credit line and use it to pay for Russian gas imports.

We still believe that the country will be able to muddle-through until the ...

The current account deficit keeps widening, jumping from USD 13.3 bn in the first half of 2021 to USD 32.4 bn in 2022.

The main reason behind this worrying trend is the energy imports bill. Monthly energy imports have increased from USD 3-4 bn to USD 7-8 bn.

Even with conservative numbers for the rest of the year, we estimate that 2022 energy imports will amount to USD 80-95 bn.

Net reserves remain in negative territory, and additional capital controls increasingly seem inevitable to us.

According to our calculations, the current account deficit will be USD 53.3 bn and gross external financing requirements will amou...

The country is under stress due to rampant inflation, persistent depreciation, and significant external risks.

President Erdoğan has used foreign policy as a campaign tool to please nationalists and Islamists, while discontent is growing because of deteriorating living conditions.

The opposition faces a tough time choosing a candidate for the 2023 elections. CHP’s leader Kılıçdaroğlu is well positioned to become the nominee, but remains unpopular with the public.

We believe that there will be a fiscal deficit of 4.0% of the GDP and a primary deficit of 0.9%, with rising risks on expenditures considering a...

Exports hit a historic maximum of USD 60.4 bn in 1Q22 from USD 49.4 in 1Q21.

Nevertheless, the current account reported a deficit of USD 18.07 bn from USD 7.5 bn in the same period of last year.

The external deficit was mainly driven by the severe increase in imports, especially energy imports, ahead of higher oil prices and the global commodities rally.

 We estimate that the lira was overvalued by 41.6% on a PPP basis in April, as inflation continues to rise unabated.

SELL: Despite manageable debt ratios, we believe the worsening macroeconomics will continue to keep pushing prices down.

The government is still looking away and resists fighting inflation with conventional measures such as rising interest rates.

By looking at the expenditure categories, inflation is driven by rises in food and beverages, transport and electricity, gas and water; all of which are affected by the rally in commodities.

While this is out of the central bank’s control, its monetary policy only adds extra pressure on public finances and prices while also weakening the lira.

The finance minister expects that the disinflation process will start in May, but there is not one sign in sight that could encourage this over-optimis...

President Erdoğan approved a series of amendments to the Electoral Law in Turkey.

The most notable change is the decrease from 10% to 7% in the required threshold of votes to enter the parliament.

This move practically discards an early call to elections.

With the reform, the MHP, an ally of Erdoğan, will benefit from higher representation in the Assembly.

New electoral law also aims to divide the opposition, but it could backfire if minor parties decide to join the CHP, the main opposition party.

After the first two months of the year, the lira is gaining some track despite the central bank FX interventions and the FX-protected accounts scheme.

As the currency is depreciating, the government has included not only residents and companies in the scheme but also foreign citizens and entities. Likewise, the lasting period can be extended without limits.

In one month, the total amount held in those accounts grew by 14.3% while the currency depreciated by 7.8%.

There are estimations that the costs of the scheme would climb up to TRY 75 to 100 bn (USD 5-7 bn, from 6.5% to 8.5% of tax revenues) by the end of the year.

Turkey is between a rock and a hard place regarding the Russian invasion of Ukraine, as the country tries to safeguard its good relations with both countries.

Turkey’s economy is in a vulnerable position because of its dependence on Russian products, so the government will try to balance its economic interests with its historical support of Ukraine.

34% of natural gas imports in 2020 and 65% of wheat imports in 2021 came from Russia, which is also the largest source of international tourists.

Ukraine holds the third place of tourists sources, and a large share of the non-Russian wheat imports of Turkey come from Ukr...

The main Turkish electricity transmission company cut the power supply for industrial zones last week after Iran announced a short-term halt of its natural gas exports.

99% of the natural gas demand in Turkey is met through imports, with Iran being one of its main suppliers alongside Russia, Azerbaijan, and Algeria.

The halt in supply came at the worst time possible, in the middle of the demand spike caused by the cold winter weather.

While we do not believe this event is likely to happen again, at least in the short term, it does bring into sharp relief a major weakness for Turkey that has no easy solution.

SELL: W...

Given the currency volatility caused by unorthodox interest rate moves and an erratic policy guidance, the monetary policy path will be crucial throughout this year.

Living conditions have deteriorated and support for the political opposition is on the rise ahead of the 2023 general elections.

New instruments will likely be introduced to protect savers from inflation, and a large depreciation will push expenditures up. We expect a fiscal deficit of 4.8% of the GDP.

We also expect inflation to rise to 61% this year, as we assume no major changes in the policy regime. Nevertheless, the GDP will grow by 5.8%.

The USD/TRY rollercoaster continues, with the lira weakening beyond 18 on Monday due to irrational policy moves and chaos-inducing interest rate cuts, before recovering to 12.3 yesterday.

President Erdogan has reiterated that rate cuts are here to stay, in line with his unorthodox economic views and Islamic religious beliefs.

Net reserves are deeply negative at USD 29.5 bn, reflecting the central bank’s inability to keep intervening in FX markets.

We believe that the current policy mix puts the central bank in an untenable position.

As the curve flattened over the past weeks, the future of the sovereign debt is ti...

The MPC decided to cut the interest rate by 100 bps on November 18 and left the door open for another cut in December.

 Erdogan spent the whole week defending this policy and declared that Turkey was fighting an “economic war.”

The president also accused critics of his heterodox monetary policy preferences of being “vassal economists” and “global money tumblers”.

The lira is unanchored, having fallen 42.2% YTD and more than 25% just in November. The TRY/USD currently trades at around 12.8.

The interest rate was cut by 200 bps, cementing President Erdogan’s grip on the central bank after reshaping it to make it amenable to his heterodox policies.

The MPC said in the press release that there is little room for further cuts this year.

While the shift to a looser monetary policy was expected, the magnitude of the rate cut took the market by surprise.

The lira has depreciated by 7.2% so far in October, further adding to the inflationary pressures after the currency had already fallen 6.7% last month.

HOLD: the good growth prospects for 2021 plus a positive debt-to-GDP ratio balance with the somewhat ...

The Central Bank started to emphasize core inflation at the expense of regular CPI once it became obvious it would fail to meet its headline inflation target

We believe headline inflation would be the most appropriate benchmark for Turkish monetary policy, and the ill-advised decision to targeting core inflation will further erode trust in authorities

Currently, the government is reversing the credit expansion policy to control inflation

We maintain our inflation forecast of 16.3%, considering the performance of the monetary aggregates

HOLD: Liquidity ratios are in the neutral-to-negative territory, but solvency met...

There are two main reasons for this upturn in cases: 1) the easing of containment measures since July 1 and 2) the impact of the highly contagious delta variant.

The government is betting on vaccination to stop the increase in cases.

Despite the rising cases, the Erdogan administration has shown no signs of returning to a new lockdown.

The MPC left the interest rate unchanged for the fourth straight month.

The committee members acknowledged the risk posed by high levels of inflation and inflation expectations, but did not commit explicitly to raising the rate if prices keep rising.

Instead, it looks like authorities are hoping that inflation will dwindle in the last quarter of the year, potentially providing an opportunity to please president Erdogan with a cut to the interest rate.

So far, there are no reasons to believe that inflation will decelerate in the next months.

In the latest IMF’s Article IV review for Turkey the stressed over the current low levels of the gross reserves, which increases the country’s vulnerabilities to external shocks.

Turkey only complies with the three-month imports coverage rule, falling short on all other traditional metrics for reserve adequacy.

Reserves amount to only 60.8% of the short-term debt stock and 39.8% of its external financing needs.

Likewise, reserves as a percentage of the IMF’s ARA metric stand at 74.7%, close to 2018 levels, when the country went through a currency crisis.

With inflation on the rise after the controversial dismissal of yet another central bank high-level policymaker, the lira is coming closer to the 9 USD/TRY threshold.

We believe an interest rate cut might be on the way, as the central bank goes back to its old ways of implementing Erdoğan’s unorthodox monetary policies.

In the meanwhile, discontent among locals is surging. The latest Metropoll survey revealed that Erdoğan’s approval rate decreased from 55.8% to 44.5% in the last year.

Metropoll also studied several presidential elections scenarios with Erdoğan losing in every matchup, except when he faces t...

Turkey reached a record number of cases two weeks ago, with the 7-day rolling average of new daily COVID infections reaching a high of 60,147.

A 17-day nationwide lockdown is already succeeding in bringing down the number of infections, which have fallen this week.

The Health Ministry expects to vaccinate all over 20s by July, which seems unrealistic considering the slow advance so far.

Our estimates suggest that GDP would register a 5.7% expansion in 2021, although we acknowledge that uncertainty around the forecast has increased.

HOLD: Controlling the new wave of contagions could limit the downside for bonds,...

After an interest rate hike of 200 bps, the central bank’s governor, Naci Ağbal, was dismissed by president Erdoğan.

The lira depreciated by 13.3% in the last two weeks of March, as the perception is that economic heterodoxy is back in the game.

Şahap Kavcioğlu, the new central bank governor, tried to calm the nerves by declaring that tight monetary policy will continue as he is not planning to cut the interest rate.

Nevertheless, we think that pressure on the exchange rate will remain as market sentiment deteriorates. 

Despite recent events, we maintain our HOLD position at the short end of the curve...

In 2020 travel income amounted to USD 7.8 bn from USD 25.4 bn in 2019, a fall of almost 70%.

Foreign visitors went from over 44 million people in 2019 to barely 12 million last year.

Energy import bill decreased by 30%, from USD 41.7 bn to USD 28.9 bn, while gold imports grew by 123% in 2020, up to USD 25.1 bn.

The current account went from a surplus of USD 6.7 bn (0.9% of the GDP) in 2019 to a deficit of USD 36.7 bn (5.1% of the GDP) in 2020.

Last week, the Turkish lira was trading at 6.9 per dollar, its best since August.

It has appreciated by 6.8% YTD, ranking as one of the best performing EM currencies.

We expect that authorities will keep the interest rate unchanged until April, when inflation is expected to peak and authorities would proceed with an interest rate hike.

Another encouraging fact is that credit growth has been below inflation in the last two months, and the central bank has been slowly rebuilding FX reserves.

We believe that recent developments do represent a significant change and justify the market’s renewed bullish stance on Turkey’s macro environment

We expect officials to maintain this hawkish stance and to continue raising rates should inflation continue to rise.

Real rates will prove to be key in Turkey in 2021, as they will anchor devaluation expectations and will reinforce the Turkish virtuous cycle

Rising gross FX reserves combined with decreasing levels of FX deposits in the banking system, is what we look at in order to track the dollarization trend within in the financial system.

Even though the ...

Early elections are almost completely ruled out, given the constant refusal of President Erdoğan who suffers a decline in popularity.

For 2021, we estimate that the fiscal deficit will decrease from 4.0% of GDP to 3.1%. Gross financing needs remain large, with 23.7%.

Naci Agbal, governor of the central bank, insisted that he will keep monetary policy tight until 2023 when inflation should be on target.

Official estimates suggest that inflation will decrease to 9.4%. However, we think that there is no reason to believe that there will be a disinflationary process, so we calculate that inflation will close at 16.4%.

...

Since Naci Ağbal was named as governor of the central bank, there has been a policy switch as the interest rate was raised by 675 bps in the last two months of the year.

However, 2020 closes with a y-o-y depreciation of 20% in its currency and annual inflation of 14.6%, above central bank estimates of 12.1% and almost triple its 5% target.

Expectation management is the real struggle for authorities, given that Turks’ perception of future inflation has deteriorated despite the hikes in the interest rate.

Currently, the weighted average cost of CBRT funding equals the interest rate at 17%.

We believe that it is...

President Erdoğan is trying to contain the devaluation of the lira while stemming the decline in reserves while the country also faces growing external tensions.

Only relations with Iran and Azerbaijan are warm.

With Greece, Cyprus, France, Egypt, Israel, Saudi Arabia and at times even Russia viewing Turkey as a competitor if not an outright enemy.

If the new US administration effectively decides to play an active role, Erdoğan would be forced to define the Turkish position over its attempt to keep all its options open.

Although we see these cabinet changes as a first positive sign of reform, our rating remains on...

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...

October was the worst month for the Turkish currency in 2020, the lira, as it reported a depreciation of 7.5%.

The currency’s depreciation accelerated after the Monetary Policy Committee (MPC) decided to keep the interest rate unchanged at 10.25% on October 22.

According to our estimates, the real interest rate is around -1.8%.  On the other hand, the Central Bank cost of funding stood at 13.4% in October.

Although the central bank is sending mixed signals, we think that they will proceed with a new increase in the interest rate.

SELL: We expect that the current dynamic to continue and the country’s...

In a surprise move, the Turkish Monetary Policy Committee decided to increase the policy rate in 200 bps, from 8.25% to 10.25%.

Given the high inflation and the depreciation of the lira, a hike in interest rates or introducing capital controls were the only two ways to proceed.

With this new move, the real interest rate will be close to 0%-1%.

Yesterday, the average cost of funding from the CBRT stood at 10.69%, with the official policy rate now acknowledging this reality.

We will keep an eye on the market’s and Erdogan’s reactions, but generally believe this is a step in the right direction.

In 2019, energy imports amounted to USD 41 bn, 5.4% of GDP.

The current account would have shown a surplus in 2019 of 4.7% of GDP, excluding the energy balance. 

Natural gas was the source of 19% of the electricity generated in 2019, down from 48% in 2014.

The Turkish natural gas finding in the Black Sea is 37% of the Zohr field, which is one of the biggest natural gas find in the Eastern Mediterranean.

Big savings in the energy bill are unlikely in the short and mid-term.

We maintain our SELL rating as we see that bonds do not fully adhere to Turkey's worsening macroeconomic and financial situation.<...

The lira’s depreciation, followed by the Central Bank’s massive FX intervention, has brought back memories of the financial crisis that Turkey experienced in 2001.

This event casted a long shadow on the country, and its ripples could still be felt during the 2018 currency crisis.

The causes that originated the crisis between the three episodes are completely different, but there is the basic assumption from the first generation model: a worsening in economic fundamentals.

2001 crisis ended in an IMF-supported program. In 2018, Qatar came to the rescue with USD 15 bn in investments.

In this case, we only ...

In the first two days of this week, the lira fell by 5.3% and has been trading above 7.2 TRY/USD, breaking the psychological threshold of 7 that authorities were trying to avoid.

With the campaign to defend the lira intensifying, the free fall in the net reserves has continued, with reserves reaching USD -24.3 bn in June.

Net short position on USD/TRY forwards held by the Turkish Central Bank, has grown from USD 19 bn in January to USD 54 bn in June.

Eventually, the market will force an adjustment, one way or the other, and the longer it takes for Turkey to realize this and actually act on it, the harder the adjustment wi...

After cutting 1,575 basis points of the interest rate, the Central Bank has kept the monetary policy rate unchanged at 8.25% for two consecutive months.

Inflation has been gaining speed, the awkward truth is that keeping the reference interest rate unchanged will not be enough to lower inflation.

Currently, the lira is stable after a decrease of 37% in FX reserves compared to early January.

There is an increase in implied yields on the USD/TRY forward contracts that we understand as a powerful indicator of how the market is demanding hedges against Lira exposure.

Cherry on top there is a credit boom to keep dem...

2019 was a particularly good year in touristic terms revenues amounted up to USD 34.5 bn with 51 million of arrivals.

In March Turkey received 718 thousand people, generating USD 514 mn in revenues, a 51% fall compared to March 2019.

In April, central bank data showed no tourism revenues, for the first time in Turkey’s history

The current account deficit for the period January-April was USD 12.8 bn. For the same period in 2019, it was just USD 885 mn, a y-o-y increase of 1,353%.

Turkish gross external financing needs are up to USD 148.6 bn, equivalent to 20.3% of GDP.

Considering we don’t expect fu...

President Erdoğan’s opposition to working with the multilateral is well-known, as he’s accused the Fund of being “the biggest usurer around the world”.

However, under the current circumstances, an agreement with the multilateral looks tempting: for the rest of the year, the country has pending debt service of up to USD 53.1 bn.

Our estimations suggest that the fiscal deficit will stand at 7.4% of GDP, while the primary deficit will amount to 4.7% of GDP.

The gross financing needs are up to USD 84.0 bn, equivalent to 12.43% of GDP.

It looks like Turkey could avoid the IMF assistance through f...

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.<...

Turkey faces a combination of high external debt, an inability so far to secure a foreign funding source and the rising costs caused by a semi-halted economy.

Additionally, the pace of the Central Bank’s reserve burn has accelerated in response to the Turkish lira weakness, in an environment with a high aversion to risk.

The last time gross reserves reported a slight rise was in the last week of February. It’s been a constant decline since then, and over the last 6 weeks they’ve decreased 30.3%, with reserves currently amounting to USD 53.9 bn.

According to central bank data, state banks have sold nearly...

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 Covid-19 crisis is prompting experimentation with quantitative easing in emerging markets. A group of Eastern European countries has already announced their intention to implement or expand local asset purchase programs.

A second group of QE candidates is in South America, where Colombia and Chile have already implemented asset-purchase programs. Brazil is in the process of discussing a constitutional amendment that would allow its central bank to join in.

Broadly speaking, the general trend in Eastern Europe has been of central banks not establishing formal limits to their QE programs, while the trend in South America has ...

Since the first coronavirus infected was recorded, the Turkish lira has depreciated over 10% while the coronavirus cases keep climbing up as Turkey establishes itself as a new Covid-19 hotspot.

Currently, there are 65,111 confirmed infected and 1,403 deaths, according to the Turkish Ministry of Health.

However, the most worrying fact is that, since April 7th, every day there’s been at least 4,000 new cases.

President Recep Tayyip Erdoğan reluctant to the idea of a national lockdown.

The approach taken by the Erdoğan administration has kept investors worried. The country restricted foreigners’ ability t...

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 ...

In the past we have stressed the exposure that Turkey has to external shocks, due to its high dependence on energy imports and the major role that tourism has on its fiscal revenues.

Tourism accounts for 52% of total services exports and 12.6% of total exports.

Some of the major partners for Turkey in tourism and trade are among the most affected countries by coronavirus outbreak.

However, as a net importer, Turkey is one of the countries that benefits the most from the collapse of oil prices.

After the 2014 oil prices fall, the net effect on the current account was 1.1% of GDP.

The ghost of the 2018 currency ...

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...

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...

Under the context of strong economic growth, that eventually went overheated, the current deficit account has always been one of the main problems for Turkey.

Behind the deficit, the reasons that explain it can be summed up in high import dependency.

Usually, the deficit is financed through foreign direct investment, portfolio investments or by issuing debt.

Instead, Turkey has relied on international reserves and increasing debt stock.

In 2019, there was a surplus in the current account for the first time in 18 years, with 0.23% of GDP.

This print was due to the compression of imports and better performance i...