Country UpdateSeptember 30, 2022
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Market Pricesukraine sovereign
|CITKIE 7 1/2 12/15/22||100.75||101.25||0||0||+0||2022-12-15|
|CITKIE 7 1/2 12/15/22||97.15||97.65||9.02||1054||+13||2022-12-15|
|UKRAIN 6 3/4 06/20/26||19.95||20.5||4.93||517||+517||2026-06-20|
|UKRAIN 6 3/4 06/20/26||20.05||20.6||4.93||518||+518||2026-06-20|
|UKRAIN 4 3/8 01/27/30||18.8||19.35||5.52||550||+550||2030-01-27|
|UKRAIN 4 3/8 01/27/30||18.95||19.5||5.52||550||+550||2030-01-27|
|UKRAIN 16 5/24/2023||104.65||105.2||0||0||+0||2023-05-25|
|UKRAIN 10 8/23/2023||95.2||95.75||0||0||+0||2023-08-24|
|UKRAIN 11.67 11/22/2023||97.5||98.05||0||0||+0||2023-11-22|
|UKRAIN 15.84 2/26/2025||106.4||106.95||0||0||+0||2025-02-26|
|UKRAIN 7 3/4 09/01/23||23.95||24.5||4.47||416||+416||2023-09-01|
|UKRAIN 7 3/4 09/01/23||24.45||25||4.49||418||+418||2023-09-01|
|UKRAIN 8.994 02/01/24||21.65||22.2||4.73||435||+435||2024-02-01|
|UKRAIN 8.994 02/01/24||21.75||22.3||4.73||435||+435||2024-02-01|
|UKRAIN 7 3/4 09/01/24||21.8||22.35||4.98||449||+449||2024-09-01|
|UKRAIN 7 3/4 09/01/24||21.4||21.95||4.96||446||+446||2024-09-01|
|UKRAIN 7 3/4 09/01/25||20.5||21.05||5.42||472||+472||2025-09-01|
|UKRAIN 7 3/4 09/01/25||20.6||21.15||5.4||470||+470||2025-09-01|
|UKRAIN 7 3/4 09/01/26||20.55||21.1||5.73||483||+483||2026-09-01|
|UKRAIN 7 3/4 09/01/26||20.35||20.9||5.75||485||+485||2026-09-01|
|UKRAIN 7 3/4 09/01/27||20.55||21.1||6.05||498||+498||2027-09-01|
|UKRAIN 7 3/4 09/01/27||20.35||20.9||6.06||499||+499||2027-09-01|
|UKRAIN 9 3/4 11/01/28||21.85||22.35||38.92||3351||-15||2028-11-01|
|UKRAIN 9 3/4 11/01/28||20.4||20.95||6.78||558||+558||2028-11-01|
|UKRAIN 7 3/8 09/25/32||19.75||20.3||6.92||541||+541||2032-09-25|
|UKRAIN 7 3/8 09/25/32||19.65||20.2||6.93||541||+541||2032-09-25|
|UKRAIN 7.253 03/15/33||19.7||20.25||6.96||539||+539||2033-03-15|
|UKRAIN 7.253 03/15/33||19.85||20.4||6.96||539||+539||2033-03-15|
|UKRAIN 0 05/31/40||32.25||32.8||0||0||+0||2040-05-31|
|UKRAIN 0 05/31/40||23.5||24.05||0||0||+0||2040-05-31|
|UKRGB 14.91 10/12/2022||101.75||102.3||0||0||+0||2022-10-13|
|UKRGB 9.84 2/15/2023||95.7||96.25||0||0||+0||2023-02-15|
|UKRGB 15.97 4/19/2023||104||104.5||0||0||+0||2023-04-20|
|UKRGB 16 5/24/2023||104.15||104.7||0||0||+0||2023-05-25|
|UKRGB 10 8/23/2023||94.85||95.4||0||0||+0||2023-08-24|
|UKRGB 10.95 11/01/23||69.6||70.1||56.32||5026||+0||2023-11-01|
|UKRGB 11.67 11/22/2023||78.9||79.4||38.35||3524||-4||2023-11-22|
|UKRGB 9.99 5/22/2024||93.85||94.4||0||0||+0||2024-05-23|
|UKRGB 15.84 2/26/2025||104.6||105.15||0||0||+0||2025-02-26|
|UKRGB 9.5 3/19/2025||92.55||93.1||0||0||+0||2025-03-19|
|UKRGB 10.57 5/10/2027||90.6||91.15||0||0||+0||2027-05-11|
|UKRGB 9.79 5/26/2027||86.75||87.3||0||0||+0||2027-05-27|
|UKRGB 10.36 11/10/2027||92.8||93.35||0||0||+0||2027-11-10|
|UKRGB 10.71 4/26/2028||94.05||94.6||0||0||+0||2028-04-27|
|UKRGB 12.5 4/27/2029||93.15||93.7||0||0||+0||2029-04-28|
|UKRGB 9.78 5/10/2029||90.3||90.85||0||0||+0||2029-05-11|
|UKRGB 12.5 10/12/2029||81.15||81.7||0||0||+0||2029-10-13|
|UKRGB 9.61 10/11/2029||89.65||90.2||0||0||+0||2029-11-10|
|UKRGB 9 7/17/2030||86.8||87.35||0||0||+0||2030-07-18|
|UKRGB 8.88 5/10/2032||87.7||88.25||0||0||+0||2032-05-11|
|UKRGB 8.75 11/10/2032||87.5||88.05||0||0||+0||2032-11-10|
|UKRGB 8.63 5/10/2033||87.35||87.9||0||0||+0||2033-05-11|
|UKRGB 8.52 11/10/2033||87.3||87.85||0||0||+0||2033-11-10|
|UKRGB 8.42 5/10/2034||87.3||87.85||0||0||+0||2034-05-11|
|UKRGB 8.31 11/10/2034||87.25||87.8||0||0||+0||2034-11-10|
|UKRGB 8.22 5/10/2035||87.3||87.85||0||0||+0||2035-05-11|
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The Ukrainian counter-offensive liberated more than 9,000 square km in the first weeks of September, just after the disbursement of military assistance by Western donors led by the United States.
Military experts are evaluating the Ukrainian counterattack as a victory, since this time the Russian front was unable to resist, unlike last April in Kyiv.
However, the Kremlin still holds important regions, such as Luhansk, and will call for referendums between September 23 and 27 to formally annex them to Russia.
Today, Putin addressed the Russian nation calling for partial mobilization for the war against Ukraine, as well as ...
The NBU updated its monetary policy guidance by declaring it would maintain the interest rate at 25% until Q2-24. This follows the devaluation of the hryvnia to USD/UAH 36.57.
These measures seek to alleviate pressures in the foreign exchange market that are pushing international reserves down and inflation up, after the latter reached 22.2% YoY in July.
On August 11, a two-year standstill on external debt was approved by bondholders.
While we believe these measures will slow down capital outflows and ease the fiscal burden, it will not be enough to curb inflation this year or to avoid another devaluation.
Today, the government presented a consent solicitation to delay all Eurobond payments by 2 years.
Interest accrued during the grace period would be paid upfront at its end or capitalized into the principals.
The proposal received immediate support from official and private creditors, including the Paris Club and a group of large institutional bondholders.
Prices held steady after the announcement, as a restructuring process was already priced in on the bonds, which are 16 pts down MoM.
Since the beginning of the war, Ukraine's fiscal position has been badly damaged, and although external financial aid continues to increase, it is not enough to cover the fiscal deficit.
Some macro indicators have improved so we have revised and updated our 2022 GDP contraction forecast to 32.2%.
Despite foreign exchange and capital controls, inflation continues to rise reaching 18% YoY in May, forcing the NBU to increase the interest rate from 10% to 25%.
The war looks set to extend beyond original expectations and authorities are reconsidering restructuring their Eurobonds. We expect early steps to be market-friendl...
As Russian forces concentrate their offensive in eastern Ukraine, more than two million Ukrainian refugees have returned to their country.
Finance Minister Serhiy Marchenko, confirmed that the monthly financing needed to cover the war-caused deficit is estimated at USD 5 bn.
Ukraine has no plans to restructure its debt for now, and as long as the West continues to support it, it is possible to honor its commitments, including September’s payments.
The U.S. is currently Ukraine's largest financial, humanitarian and military supporter, and the additional USD 40 bn in assistance will mean it has provided three time...
The total foreign assistance both from bilateral and non-bilateral donors amounts to more than USD 30 bn.
Plus, the country recently requested a USD 50 bn to G7 countries to cope with the war-related budget deficit gap.
Having reviewed our scenarios, we believe that an extended conflict is currently the most likely outcome.
We look into Ukrainian, Russian, and Belarussian Eurobonds to evaluate differentiated performances in response to the war.
Sanctions against Belarus and Russia have sent their bond prices to 15.1 and 20.4 cents on the dollar, making them the third and fourth cheapest bonds in the world after Venezuela and Lebanon.
Ukraine's sovereign bonds initially fell to a 22.1-cent bottom on March 7 but have since bounced back to 41.2 cents. Despite the large recovery, market uncertainty over a potential restructuring operation remains.
We found a short-end premium for Ukrainian bonds which reflects some li...
After constant shelling, Russian troops have finally withdrawn from Kyiv, but the city of Mariupol, in the Donetsk oblast, is practically destroyed.
Zelensky said that he is ready to shift into a neutral position and fully focus on the situation in the Donbas region.
Ukraine's economy minister has reported an estimated USD 565 bn in financial and infrastructure losses. We have updated our GDP forecast to a 55% year-on-year decline by 2022.
More than 4.5 mn people have fled Ukraine to border countries, and around 6.5 mn have been displaced inside the country.
We do not believe that the negotiations held in Istanb...
International markets seem to be bracing themselves for a prolonged conflict between Ukraine and Russia.
The sanctions imposed on the country and the high cost of the war, which has lasted longer than the Kremlin seemingly expected, have pushed Russia into an all-or-nothing approach.
Despite the help provided by the West and Ukraine's allies, we do not believe that the country will be able to repel the Russian attack, much less pay its sovereign debt.
We have outlined several scenarios to anticipate what the outcome of the conflict could be and what investors will face regarding Ukrainian debt.
We believe there ...
The West has imposed severe sanctions on Russia, cutting some Russian banks from SWIFT and suspending the certification process of the now sanctioned Nord Stream 2 gas pipeline.
Energy commodity prices have skyrocketed; however, Russia continues to send gas flows to Europe, even via Ukraine.
Disruptions in Russian gas supplies through Ukraine could further disrupt the European gas market.
The threat of strong sanctions in the event of an invasion could change the Kremlin's outlook.
President Zelensky has asked his Western allies, particularly the U.S., to tone down their comments about the risk of invasion, which might be starting to hurt Ukraine’s economy.
The impact of the geopolitical standoff has begun to show up in the main macro indicators of both Ukraine and Russia.
The UAH has plummeted to its lowest level in seven years.
BUY: Volatility continues weighing over Ukraine as invasion fears have not dissipated. However, current prices offer an attractive risk/reward in the long ter...
Ukraine will likely continue introducing anti-corruption reforms to maintain international support.
The geopolitical tensions between Russia and Ukraine, the U.S., and the EU will continue in the near future.
We estimate GDP will grow 3.5% this year, slightly surpassing its pre-pandemic level. However, inflation will likely remain above the NBU target (5+/- 1 pp), as our forecast for 2022 is 8.1%.
We forecast that the government’s overall balance will be -5.1% of GDP in 2022, a deterioration over the estimated -2.1 % deficit registered in 2021.
The Russian threat raises credit volatility, but financial support...
The IMF Board of Directors completed the first review of Ukraine’s 18-month Stand-By Arrangement (SBA), approving the disbursement of 500 million SDR (USD 700 mn).
International reserves rose to 30.5 bn in November after the disbursement, reaching their second-highest level in eight years.
The NBU maintained its end-2021 inflation forecast of 9.6%, lower than our 10.2% YoY expectation. The NBU also raised the interest rate from 8.5% to 9%.
Meanwhile, the country’s geopolitical issues are the focus of discussions among the U.S., Russia, and the European Commission.
HOLD: Fear of a Russ...
Germany's energy regulator has suspended the approval for the Nord Stream 2 pipeline on technical grounds.
Belarus announced it will stop supplying electricity to Ukraine beginning on November 18.
The U.S. and Europe are discussing possible responses in case of a Russian attack on Ukraine.
Policymakers worry that gas prices might keep increasing throughout the winter season across Europe.
Ukraine's yield is attractive given its fundamentals and the possibility of an IMF disbursement that will engross FX reserves.
We compare Ukraine's macro fundamentals to Romania, which offers much lower yields despite some significantly worse metrics, and to Turkey, which has roughly the same yield but worse indicators and a difficult political situation.
Solvency looks reasonably good, with the total debt to GDP ratio still below 50%.
HOLD: The current internal political situation and fears of a new Russian invasion have been pressuring the credit so far, but FX reserves cover next year's pa...
Rising tensions at the Ukrainian border have escalated into armed clashes between Ukrainian and Russian-backed troops in the Donbas region.
Ukraine responded to the ceasefire violation with drone attacks, which were strongly criticized by the Kremlin, as well as France and Germany.
Russia has been cutting down gas supply to Europe since late October.
Ukraine’s Donbas region is known for its coal reserves and has the largest coal mines in the country, although in recent years the industry has lost much of its economic importance.
HOLD: Year-to-date the credit has been under a lot of pressure, but next year'...
Spot natural gas prices have skyrocketed, threatening to throw Europe into an energy crisis as the winter season approaches.
Ukrainian real GDP growth accelerated to 5,7% YoY in Q2-21, but the energy sector underperformed with a YoY decline of 1.9%.
Nord Stream 2 pipeline is expecting certification by German regulators.
HOLD: The credit is trading on average 2.3 pts lower over the past month, despite some limited positive signal from multilateral and private entities.
The IMF mission started its virtual assessment of Ukraine’s reforms, with the government hoping to unfreeze the second tranche of SBA financing worth USD 750 mn.
By the end of 2021, the country could receive USD 4.3 billion in financing from the IMF, EU, and the U.S.
International Reserves were on the rise in August, reaching a 9-year high. While we are not expecting a new high in September, the mid-term outlook remains cautiously auspicious.
HOLD: Ukraine has been very active in international bond markets lately, paying USD 1.3 bn to redeem its 2021 Eurobond and looking to issue next year.
Ukraine expects the IMF to unfreeze its assistance and transfer USD 750 million in November as part of the USD 5 billion loan program signed in June 2020.
The IMF has declined to confirm a date for the release of funds, but a mission will arrive in September to evaluate the progress in the reforms set in a Stand-By Arrangement.
The European Union approved the transfer of EUR 600 million to Ukraine, the second half of a macro-financial assistance program signed last year.
UKRAIN 40 has been a bond generating a lot of buzz since its inception due to its very favorable structure for investors. Now, the question is whether it is a gold mine or a fool’s gold.
Our GDP estimates for the pessimistic scenario involve downward pressures in the short and medium-term, followed by a slow convergence towards a long-term growth rate of 4%.
The low likelihood of the optimistic scenario provides a grim perspective for the bond’s valuation, as odds favor either a minimal upside or severe losses.
Once a very attractive asset because of the possible large returns that it could generate, UKRAIN 40...
Ukraine took two important steps towards renewing the IMF deal, as the Rada passed the “anti-oligarch” and banking laws.
Nevertheless, the reformist drive was overshadowed by the wave of resignations from key NBU authorities.
The directors of the licensing department alleged that decision-making in the NBU is drifting towards centralization.
The NBU is deviating from its own standards, which could put the country in a dire position as IMF financing will likely remain frozen.
HOLD: Renewed doubts over NBU’s independence are sure to have played a role in the performance of UKRAIN bonds. While Septemb...
Although the fiscal deficit remains in line with other emerging markets, fiscal spending continues to be high despite the withdrawal of the COVID-19 stimulus.
We believe that the government will slightly cut its deficit this year (4.9% of GDP in 2021 from 5.2% in 2020).
We expect gross financing needs to reach USD 19.2 bn or 11.5% of GDP between May and December.
If there is no IMF disbursement this year, Ukraine will cover its external debt service through a major international reserves drawdown.
HOLD: UKRAIN bonds remain on a good roll, and their short-term outlook does not look concerning. Still, risk factors wei...
Although Russia announced plans to withdraw military forces from the Ukrainian border on April 22, it left behind almost 80,000 troops.
Moscow could be pressuring Kyiv to resume the water supply agreement to the Russian-occupied region of Crimea, which is full of Russian military assets.
Russia is also consolidating its power over the Black Sea, an important maritime flashpoint.
U.S. Secretary of State Anthony Blinken’s visit did not result in additional military aid or arms sales, disappointing Ukrainian authorities.
We think that the U.S. will take the opportunity to tie its support to domestic reform progre...
GDP dropped by 4% in 2020, in line with EMFI’s forecast (-4.2%).
The economic recovery in 2021 could be undermined by the second wave of COVID-19 infections and the possible escalation of the conflict with Russia.
An escalation of the conflict with Russia would dramatically change the outlook and could bring an economic crisis such as the 2014-15 collapse.
Not reaching an agreement with the IMF before September will mean higher external debt costs, pressures on international reserves, depreciation of the FX rate, and lower inflows of foreign investments.
The delay in the talks with the IMF keeps the bonds in s...
There are few political incentives to reach an agreement with the IMF before the first half of the year, as liquidity needs will not jump until September.
Although Ukraine has enough reserves to meet its external debt commitments this year, doing so without IMF financing would leave the country in a vulnerable position.
The G20 initiative of increasing SDR allocation will be warmly welcomed by the government.
Ukraine is likely to receive USD 2.1 bn (or 1.3% of GDP) in the new SDR allocation, enough to meet its international bonds repayments next year.
HOLD: The market has not welcomed the lack of agreement in recent...
Even though Ukraine had a strong performance in the last 6 months, our bullish thesis on the long end of the Ukrainian curve remains intact.
The curve lost curvature, which led the belly to outperform by ~180 bps, but the curve is still steep. We now favor UKRAIN 32 over UKRAIN 28.
Our biggest catalyst for a potential tightening for Ukraine is the disbursement of the second tranche (USD 2.2 bn) of the IMF’s SBA program-related funds
We think the long end of the curve is poised to outperform, with the 10y-1y slope hitting the long-term average of 250 bps.
EMFI Securities foresees the fiscal deficit to increase by 0.4 pp of GDP to reach 5.8% in 2021.
With this result, gross financing needs will amount to USD 24.6 bn or 15.4% of GDP this year, the bulk of which comes from domestic debt principal payments (USD 11.9 bn).
The Finance Minister is expecting USD 2.2 bn from the IMF in three tranches during 2021, alongside a new Eurobond issuance (USD 2.4 bn).
The country has enough external buffers to make ends meet this year, but the IMF remains the key piece of the puzzle.
HOLD: We retain our overall HOLD rating on Ukraine as new developments on the IMF front, which could ...
The conflict between the President and the Constitutional Court is escalating, and political turmoil remains the key risk in 2021.
Although the economy bottomed out in the 3Q-2020, it is far from the pre-COVID level.
Some good news comes from the expansion of high-frequency economic activity indicators in November, but it is too soon to determine if this performance will continue next year.
Inflation is on the rise and could threaten the nascent economic recovery while fuelling social tension
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...
Ukraine is wrapped up in a political fight that threatens over USD 5 bn in new financing flows and puts next year’s debt repayment of USD 13.3 bn in doubt.
The Constitutional Court is now acting as a political tool blocking every anti-corruption intent in Ukraine.
The president introduced a bill to the Rada to disintegrate the Constitutional Court.
The bill could set a precedent in Ukraine for passing undemocratic laws that contradicts the Constitution.
The international community could only support this solution if the Court continues to pass laws that threaten the reforms needed to enhance Ukraine...
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.
2020 local election had the lowest turnout in history at 36.9% (from 46.5% in 2015).
Regional parties did very well on October 25, wining in almost every big city.
Zelensky’s party didn’t win any mayor in big cities, but did well on the district and city council level.
Mayors are now real players in the run-up to the 2023 parliamentary election.
Zelensky’s defeat in local elections could force the dissolution of Parliament and trigger an early parliamentary election.
We retain our HOLD rating on the long-end and belly of the curve, but find the credit more appealing than before.
Ukraine’s yield curve has been gradually steepening; at this point, we find the 8y-2y spread – currently sitting at a historical high of 263 bps – excessive
Ukraine has considerable fiscal space relative to peers, but actually trades wider than most of them.
We expect the Ukrainian yield curve to continue to shift down and flatten, a movement which could entail a tightening of 130 bps.
We estimate that the current account will close the year with a surplus of USD 3,645 mn (or 2.5% of GDP).
The positive result in the current account has allowed Ukraine to replenish international reserves.
The large external financing needs puts the country in a vulnerable position that highly depends on the IMF deal.
We maintain our HOLD on Ukraine, even though we like the risk/reward balance on Ukrainian sovereigns.
Ukraine has been doing its homework, and the country’s fiscal position was in good enough shape to face the COVID-19 crisis.
The impact of Russian and Ukrainian oligarchs over the domestic political arena is indisputable, and they also jeopardize the country’s relation with the IMF.
A bulky debt service schedule until 2025 keeps Ukraine on the verge of a liquidity crisis, all while solvency remains afloat (for now).
We maintain a HOLD rating over Ukraine’s external bonds. These are expensive high-yielders, but fiscal and debt indicators are better than most “B” issuers.
Fiscal figures from the Consolidated State Budget show a primary surplus in the first two quarters of 2020, but the result was lower compared to last year.
The reduction of the fiscal deficit in the last 5 years has allowed Ukraine to face this crisis by increasing its public spending in 2020.
At EMFI Securities we expect a primary fiscal deficit of 2.7% of GDP in 2020, as a result of lower tax revenues driven by the output drop and higher public spending.
Ukraine’s major risks are: i) a sluggish economic recovery next year; and ii) the political issues regarding the NBU independence that could close the external fi...
Economic activity declined sharply, with GDP shrinking 1.3% YoY in the first quarter of 2020.
Among the factors behind the 1Q-2020 contraction is the negative impact of the lockdown on industrial production and the service sector.
High-frequency indicators showed a gradual recovery of the most important economic activities in May.
If the IMF freezes the SBA program, investment could decline deeper and the economic recovery could be more gradual.
The buyback of USD 840 mn in 2021 and 2022 bonds supports short-term liquidity, but souring relations with the IMF provide downside risk.
The NBU Governor Smolii's resignation could threaten the independence of the NBU and the continuation of the IMF deal.
We evaluate Zelensky's recent political moves as highly negative for the future of Ukraine’s economic reform.
If the IMF delays the SBA deal, we should expect a depletion of international reserves and a weakening of the FX rate, raising the debt burden and the need to rely on monetary financing to cover the fiscal gap.
The yield curve paints a general picture of short-term stability but long-term deterioration.
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.
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.
Since 2017, Ukraine has implemented reforms to build the domestic debt market. As a result, the portfolio of non-residents has increased markedly since 2018.
Since early 2020, these capital inflows have been reversed due to the Covid-19 outbreak and the UAH depreciation.
The Government has been issuing a larger number of T-Bills at a short-term maturity to cover its financing needs in 2020.
Nearly 85% of the T-bills issued until June 9 are of short-term maturity, which will increase the debt service costs in the short-term.
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 new Banking Law was approved today, bringing fresh money to cover the financing needs.
The new IMF deal will be for less money and have a shorter time frame but without structural reforms.
Financial assistance from the international community and the IMF would close the financing gap this year.
Industrial, agriculture and construction production indices started showing signs of economic contraction.
Ucranian bonds reacted positively to the announcement of the IMF deal
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.<...
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 fragmentation of the ruling political party and the weakened influence of Zelensky on his faction complicate the approval of the banking bill, which is key to unblock the IMF financing.
The increase in budget expenditures, as well as the need to pay the public debt, is forcing greater cooperation with the IMF.
The country faces large financing needs of 14.9% of GDP this year.
If Ukraine fails to unlock the IMF deal, it will have to rely more on the domestic market debt to refinance May and September payments.
The Rada recently increased the debt ceiling to 60% of GDP in 2020 (from 50.3% of GDP in 2019).
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...
On Monday evening, the Parliament of Ukraine passed the law legalizing the sale of farmland needed to qualify for the IMF’s Extended Fund Facility (EFF) arrangement.
The Parliament also approved the first reading of the banking law earlier Monday.
The adoption of these two laws is the IMF condition for the new USD 5.5 bn EFF deal, according to Managing Director Kristalina Georgieva.
President Zelensky said that once Ukraine fulfills them, it will receive the first funds (USD 1.75-USD 2 bn) within 15 days.
Today, German Chancellor Angela Merkel approved a EUR 150 mn state loan to help Ukraine fight the coronavi...
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 ...
Political tensions on the doorstep and a complicated fiscal deficit, Egypt and Ukraine have some similarities despite the obvious differences with which they are associated.
The latest cabinet changes and delays in key reforms in Ukraine are misinterpreted by the markets.
Despite the high deficit and the magnitude of the next payments, Egypt has reserves almost twice as large as Ukraine.
There may be an opportunity to enter the current prices of Egypt, with lower than those of Ukraine and with better yields.
In any case, the impact of the pandemic still seems unpredictable for both countries.
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...
Since the beginning of March, GDP-linked warrants have lost a third of its value as a result of President Zelenskiy cabinet reshuffle and the dismissal of a highly regarded prosecutor general.
Ukraine's economic growth has been disappointing since the last quarter of 2019.
According to our estimates, depending on the level of real GDP growth, aggregated payments of GDP-linked warrants could amount from USD 3.6 bn to USD 16.1 bn.
GDP-linked warrants seem to be trading considering a GDP growth around 3% per year, which is our baseline scenario.
Lifting the moratorium on agriculture land sales could boost economic ...
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...