We believe that the Maduro regime is unlikely to take military action against Guyana, as we expect tensions between Guyana and Venezuela to cool down as Maduro focuses on the upcoming presidential election to be held on 2H24.

Oil production will increase by 55.8% to around 600 kbd following the recent beginning of operations at the FPSO Prosperity.

We expect GDP growth to accelerate to 43% in 2024 from our 2023 forecast of 35.4%.

We believe that the fiscal deficit will start narrowing next year, reaching -4.7% of GDP from our estimate of -5.7% for 2023.

Lebanon will suffer the consequences of the war between Israel and Hamas, even without the full participation of Hezbollah in the conflict.

The presidential vacancy will likely extend through 2024, although the pressure to finally select a president continues to increase.

The 2024 budget proposes to increase revenues through increases in VAT and other tax rates, containing expenditures, and a fiscal deficit of 2.5% of the GDP.

Our own estimate for the budget deficit is 1.7%, considering the lack of financing sources after the new central bank governor rejected the monetization of the deficit.

We expect GDP to contract by 1.7%, with downside risks for the key tourism sector due to the war. Inflation is set to decelerate given the recent market FX rate stability.

BUY: With prices near historical lows, we see an asymmetric risk/reward proposition that offers the potential for significant returns even assuming an aggressive restructuring and a delayed horizon.

The Pakistani economy will grow by 2% in FY 2023-24, while inflation will remain at two digits, reaching 21.6% by the end of the fiscal year.

The political landscape remains unclear, as there is not a clear frontrunner for the February general election. Our baseline scenario, if Imran Khan is not allowed to run, is a PML-N’s victory.

We expect a fiscal deficit of 6.8% of GDP and a primary surplus of 0.2% of GDP, slightly higher than official forecasts.

After the elections, Pakistani authorities will need to secure multilateral and bilateral funding to fulfill its financial commitments.

Our fiscal figures for 2024 are slightly more optimistic than the government’s. We project a primary surplus of 6.6% of GDP and a global balance of 1.1% of GDP versus 6.2% and 0.02%.

We forecast the government will have to raise 10.7% of GDP in 2024, less than the 14.0% of GDP we estimate for 2023.

We expect GDP growth to accelerate slightly to 1.4% in 2024 (below the 2.8% of the government), from our latest 2023 forecast of 0.5%.

We expect the current account surplus to slightly increase to 4.6% in 2024 from a forecasted 3.7% of GDP in 2023, mainly due to an increase in oil export volume.

The small gains in the current account are not sufficient to eliminate the pressure on the FX market.

We expect the exchange rate to keep depreciating to AOA 934 per USD in 2024 (from AOA 690/USD in 2023) and inflation to remain high (21.3% in 2024, from 20.7% in 2023).

BUY: Highlighting the risks tied to the oil price and production volatility, if Angola keeps trading within the 650-850 bps spread range, bond investors would achieve great returns over the year.

An order by Judge Andrea Masley dissipates lingering uncertainty on the validity of the opposition’s August tolling announcement.

Indicative Bloomberg prices continue to show an average 2.6-pt discount on matured sovereign bonds vs. unmatured ones, and the discount is bigger for VENZ 13.625% 18 (13.5c) when compared to VENZ 11.95% 31 (18.5c).

 In our base case scenario, we don’t expect a restructuring to happen before the end of the tolling period and we maintain a HOLD recommendation for all Venezuelan bonds.

However, for relative value considerations, we suggest switching from higher-priced unmatured bonds to lower-priced matured ones, with special preference for VENZ 13.625% 18 and VENZ 12.75% 22.

The Sri Lankan economy will rebound in 2024 and grow 4.8%, while we expect inflation to accelerate to 7.6%.

The political landscape remains a source of uncertainty, and the day of the 2024 presidential and legislative elections is yet to be decided. Nonetheless, we believe the opposition is favored to beat the Wickremesinghe administration.

We anticipate the fiscal position to improve in 2024, with an overall deficit of 7.5% and a primary deficit of 0.3%.

We expect a deal to restructure debt with official creditors to be announced in the first quarter of 2024.

HOLD: Bond prices offer a roughly symmetrical space for upside and downside in relation to publicly available restructuring proposals from the government and the Ad Hoc bondholder group.

Costa Rica's political outlook will remain stable despite the drop in President Chaves' approval rating and the discontent caused by the security and migration crises.

The primary surplus will decrease to 2% of GDP in 2024 from 2.2% in 2023, while the overall fiscal deficit will slightly widen to -2.7% of GDP from the -2.6% we estimate for 2023.

Our fiscal estimates are in line with IMF program targets, and we believe the country will successfully complete the EFF and RSF.

External headwinds will cause economic growth to slow to 3.9% in 2024 from 5% in 2023.

The central bank will ease monetary policy, cutting interest rates by 125 bps to 5%, which will push inflation to 2.2% by the end of 2024.

SELL: Driven by the country's fiscal progress, Eurobond prices have rallied close to par levels and we believe the potential downside outweighs the limited upside potential.

Trinidad and Tobago will keep muddling through the natural decline in the energy output, with a slight deceleration of the GDP and inflation.

The political picture remains stable, even after the ruling party's defeat in local government elections. PM Keith Rowley's political agenda will be centered on securing a third term in 2025.

The fiscal position will report an improvement compared to 2023, with a fiscal deficit of 2.4% of the GDP and a primary surplus of 0.4%.

The country has several funding sources to easily cover its financing needs for next year.

We forecast a 2.4% economic growth, a slight slowdown from our estimate of 2.7% for 2023 due to the natural decline in the energy output.

HOLD: Low short-term debt service, coupled with high commodity prices, makes a default situation unlikely in the short-to-medium term, but yields are not attractive given the risk profile. 

Despite the latest setback in negotiations, we expect a restructuring of Zambia's debt with private bondholders will be agreed by 1Q24.

We expect to start seeing the results in the mining activity next year after recent agreements, taking GDP growth to 4.1% in 2024 from 2.6% in 2023.

We remain optimistic regarding Zambia's fiscal position. We project a fiscal gap of 5% of GDP in 2024 and a primary surplus of 1.3% of GDP, above the government’s 0.7%.

Macroeconomic performance in 2024 and 2025 along with an improvement in political and economic institutions will lead to an upgrade to a medium debt-carrying capacity in 2026.

The realization of the upside case on the contingent value clause remains more likely, although we insist on the risk of the revision of the terms and a worsened final offer for bondholders. Overall, we think that there is a balanced risk/reward profile for the name, and therefore maintain our HOLD rating for the name. 

We expect no surprises from the upcoming general elections, with President Nayib Bukele being reelected for another 5-year term and the ruling party retaining a qualified majority in parliament and winning most municipalities.

We estimate that the overall balance will reach -1.9% of GDP, slightly below the 1.6% deficit projected by the government.

The government still faces significant financing constraints as we estimate that gross financing needs, including the 2025 Eurobond amortization, will reach USD 1908 mn (5.3% of GDP), with a financing gap of USD 540 mn.

We forecast a 1.9% economic growth, a slight slowdown from the 2.1% that we estimate for 2023 due to a deceleration of the US economy and the negative impact of the El Niño weather phenomenon.

HOLD: After the eye-watering performance of the last year, we think the credit now offers a balanced risk/reward proposition with a moderately adverse fiscal backdrop but little short-term default risk.

In 2Q23, the Angolan economy stagnated with a 0.01% y-o-y variation, decelerating for the third consecutive time since 2Q22.

The decline in oil production slowed in 3Q23 but it remains below last year's levels, which is dragging economic growth and poses a significant risk to our 2023 GDP forecast of 2.1%.

Current oil production trend and a significant drop recorded in 4Q22 still point to better GDP results in 3Q23 and 4Q23.

We believe the government will achieve a limited increase in oil production in 2024 and we expect a 2.3% GDP growth.

BUY: With Z-spreads at 822 bps for ANGOL 32, we still believe that bonds still have room for a slight compression.

The war in Israel erupted right when Egypt was starting to see external investment inflows, posing risks in other flows such as tourism-related ones.

The Egyptian government is unwilling to welcome Palestinian refugees, although it could bring international assitance to support them.

The war will have an impact on tourism, with less than 10% of bookings until April having been canceled so far according to the tourism minister.

While the war has highlighted the country’s geostrategic relevance, and Gulf and Western allies might come to Egypt’s rescue to prevent the region from collapsing, the war-related risks outweigh any opportunities. 

With only one week left until the run-off, polls estimate that the results will be extremely tight. 

We can use the last 13 months to picture how the economic policy would be under Massa´s government. 

He would undergo a considerable fiscal adjustment, but we are uncertain regarding if it will be fast enough. 

Uncertainty rules when picturing the FX management and the IMF´s program future. 

With the current policy mismanagement, we expect 2024 inflation to totalize 246% YoY. 

BUY: While the macroeconomic outlook for the country is not constructive, at current prices the break-even recovery values are too low as they incorporate very stringent restructuring terms following an eventual default. 

The outlook on Costa Rica's macro is improving, as the IMF and central bank upgraded their growth forecasts and S&P and Moody's upgraded the country’s credit rating. 

Having incorporated the latest macroeconomic data, we also revise our GDP growth forecast for 2023 and 2024, from 3.1% to 5% and from 2.9% to 3.9%, respectively. 

Costa Rica issued a new 31-years Eurobond with a 7.3% coupon and a 7.75% yield. 

Since his reelection, President Erdogan has stressed the importance of the 2024 local elections, with the ambition to recover Istanbul and Ankara from the opposition’s hands.

May results show that the opposition won by a tight margin, which is not impossible to reverse considering Erdogan’s machinery.

The opposition is fractured after Kemal Kilicdaroglu lost to Erdogan, with IYI’s head, Meral Aksener, calling to the parties to present their candidates separately.

Nonetheless, another alliance for the main cities cannot be fully ruled out. In the end, this is the only holdout for the opposition in Turkey.

With Z-spreads for the 10Y bond at 400 bps, below the 1Y mean of 495 bps, we maintain our HOLD rating for the name.

The government of Venezuela called for a consultative referendum on the area in dispute with Guyana, which will be held on December 3.

To retain power and sanctions relief, Maduro must obtain a fair victory in the upcoming presidential election (or at least appear to do so).

The Guyana referendum seems to be part of another propaganda strategy by the Venezuelan government.

Although the plebiscite will likely be approved, we believe the Maduro regime is unlikely to take action against Guyana.

On November 1, Judge Denise Cote of the Southern District of New York granted Sri Lanka a 6-month stay in its case against Hamilton Reserve Bank, after the US government entered a statement of interest supporting the move.

The firm holds just over 25% of the SRILAN 22 outstanding, which is enough for a blocking position due to its old-style series-by-series Collective Action Clauses with a 75% threshold.

In general terms, the decision limits the ability of bondholders to avoid participating in a negotiated restructuring by rushing to the court but this restriction is subject to the debtor country being amid a consensual restructuring with good probabilities of success.

In this specific case, it is unclear what benefit can Hamilton derive from an early judgment, given that they have a blocking position in the bond to prevent restructuring by the effect of CACs.

The government confirmed a total repurchase of USD 237 mn. 

In addition, Jamaica issued a new 7-year JMD-linked bond. 

The bond interest and principal will be paid in USD dollars at the average of the spot exchange rate.  

Our EMFI Core Index rose 1.2% in October, with 8 names gaining ground, 9 posting negative returns, and 3 holding steady. 

VENZ (+97.8%), ZAMBIN (+12.3%), SRILAN (+8.0%), and SURINM (+6.6%) outperformed, while LEBAN (-19.0%), BOLIVI (-7.0%), GHANA (-5.1%) and UKRAIN (-4.6%) underperformed. 

Our Research Team focused on covering the presidential elections in Ecuador and Argentina, political negotiations and primaries in Venezuela, and developments on Lebanon’s involvement in the Middle Eastern conflict. 

In addition, we reviewed our credit outlook for Argentinian sub-sovereign bonds. While the sovereign bonds are trading at distressed prices, we find attractive opportunities in provincial bonds with lower risk. 

Ghana is showing gradual improvements in macroeconomic conditions; however, social unrest remains high.

The country is currently experiencing its worst crisis in electric generation and disruptions due to flooding in parts of southeastern Ghana.

We kept our estimate of 2.4% for 2023 and aligned with market consensus (2.5%) but in 2024, we expect growth to pick up to 4.4%, above consensus (3.5%).

Structural issues like recurrent floods and energy shortages limit growth prospects and pose significant risks to our DSA estimates over the medium term.

We expect negotiations for the restructuring to continue, and despite we see a slight positive asymmetric risk-reward balance, we expect no imminent catalyst for the credit. We maintain our HOLD rating.

We slightly adjusted our forecast for the GDP growth for 2023, from 3.0% to 2.7%.

The energy sector has been presenting mixed signals, however, overall it presents persistent contractions following the natural decline in the output of both crude oil and natural gas.

Despite authorities’ efforts by promoting bidding rounds in offshore and onshore blocks, and some little discoveries, it is hard to believe that there will be a game changer for the current trend.

The non-energy sector is constrained by several factors, but it has been responsible for partially offsetting the poor performance coming from oil-related activities.

Until the Dragon field starts to pump natural gas from Venezuela to T&T, we believe that the economy will muddle through reporting growth rates between 2% to 3%.

HOLD: We continue to believe that there are better risk/reward opportunities in the emerging markets space. However, positive indicators make a default situation unlikely. 

Revenues continue to lag behind budget projections, leading to cuts in fiscal expenditures to comply with primary surplus targets.

The 2024 budget projects a fiscal gap of 5% of GDP (in line with our estimate) that would be covered almost evenly by domestic and external sources.

Primary surplus is projected at 0.7% of GDP, below our estimate of 1.3% of GDP.

We remain positive about Zambia's fiscal development given the high commitment shown by the government to deliver on the IMF program despite an adverse external outlook.

An agreement between Zambia and a sub-group of the bondholders committee on restructuring terms has finally been made public.

Returns will be tied to whether the upside clauses are activated or not and seem to offer a symmetric risk reward investment if we assume that the exit yield will be closer to the 13-14% range. We therefore maintain our HOLD rating for the name.

Daniel Noboa will inherit a challenging fiscal situation, with a widening deficit and declining revenues.

In 2023, current expenses (mainly public sector wages) increased 11% up to September and will register record levels by the end of the year.

We believe tax revenue will fall short in 2024 due to targeted tax exemptions, as well as a considerable reduction in the tax rate on FX outflows.

We expect 2024 to be a challenging year for the Ecuadorean fiscal position, with a forecasted fiscal deficit of 4.1% of GDP and a primary deficit of 1.8% of GDP.

BUY: Valuations remain very low and step-up coupons make for low breakeven recovery values but we expect continued pressure on fiscal accounts in Noboa’s transitional period.

Nigeria’s monetary policy has been a ship adrift in recent months, as inflation reached a 25-year high in September (26.7%).

The naira has plunged in the parallel market, reaching over NGN 1,150/USD, increasing the gap with the official rate of NGN 910/USD.

Liquid reserves seem to be lower than previously estimated by the market. 2022 financial statements show that by December 2022, net reserves stood at USD 18 bn.

Tinubu’s reform agenda seems to be losing momentum, but we believe that the commitment to reform remains. Recent measures continue to point to a market FX liberalization.

HOLD: We expect that FX shortage to have a limited impact on the external debt service given the low burden it represents.

Sentiment on Venezuelan debt has improved markedly on the back of the Barbados agreement and the suspension of key economic sanctions against the country, pushing bond prices to post large gains.

While recent developments are undeniably a step in the right direction, we’re skeptical that they will lead to a full resolution to the Venezuelan political crisis or a debt restructuring.

The two fundamental questions for recovery in the Venezuela and PDVSA bond complexes are when and under which circumstances will a restructuring take place.

In our base case, we assess an upper bound to recovery values at 32% under the assumption of a Maduro-led restructuring set to the backdrop of a limited recovery of oil production.

While we still see significant room for gains under constructive scenarios, we find the risk/reward profile for bonds far less compelling.

We switch our recommendation on all Venezuelan debt, including senior unsecured PDVSA and the PDVSA 20 bond, from BUY to HOLD.

Headline inflation accelerated for the fifth month straight to 38.0% YoY in September.

Core inflation slightly retreated from 40.4% to 39.7%, not necessarily meaning that it will persist this way.

Another devaluation is a pending task as the government has committed to a flexible FX rate but also to the consequences of higher energy prices.

Additionally, high inflation has increased the monetization of the deficit from the central bank with challenging budget deficits.

Pakistan’s current account deficit narrowed by 58% in Q1 FY-2024, reaching USD 947 mn relative to the USD 2,3 bn of Q1 FY-2023.

The current account deficit compressed significantly on a shrinking trade deficit.

Considering the preliminary results of the external sector, we updated our current account deficit forecasts from -2.1% of GDP to -1.3% for FY-2024 and -2.2% of GDP for FY-2025.

Despite its recovery, international reserves remain below adequacy ratios.

While the country is facing liquidity issues, we are still optimistic that it will pay PKSTAN 24 in detriment of the rest of the curve. We therefore maintain our SELL rating for the name but continue to like the 2024 bond due to its risk/reward setting.

Current Finance Minister Sergio Massa surprised in Sunday’s presidential election, coming in first with 36.6% of the votes.

Javier Mieli, who was favorite in the run-up to the event, came in second with 30.0%.

Massa and Milei will face each other in the runoff scheduled for November 19^th.

We expect strong negative price action in the Eurobond market on open.

The government estimates revenues to fall from 26.1% of GDP in 2023 to 23.7% in 2024.

The government expects to achieve an overall balance deficit of -1.4% of GDP in 2024 (vs. -1.5% of GDP in 2023) and a primary surplus of 2.2% (vs. 1.7% of GDP in 2023).

The budget projections are more pessimistic than those of the IMF, which may indicate that the government will not meet the corresponding program target.

We forecast that the government will achieve an overall balance deficit of -1.4% of GDP and a primary surplus of 2.7%.

Suriname’s government finally presented the exchange offer to effectuate the Eurobond restructuring. Bonds have risen significantly since we switched our recommendation to BUY, but we still like the risk/reward in the offer.

On October 19, the Jamaican government announced an offer to repurchase three Eurobonds maturing in 2025 and 2028. 

The announcement produced an average gain of 0.3 pts against Wednesday’s levels and leaves bonds trading with yields in the 5.9-6.2% range that provide Z-Spreads of barely 45-160 bps. 

In our view, the tender offer is a good opportunity to exit at above-market prices from a position that offers unattractive spreads. 

The IMF’s October update of its WEO has global growth at 3.0% in 2023 (no change against July´s edition) and 2.9% in 2024 (-0.1 pp).

These figures imply a global slowdown compared to both 2021 and 2022 figures, which were 6.3% and 3.5% respectively.

We analyze key credit metrics using WEO data for cross-country comparability.

We focus on the Sub-Saharan Africa region and other selected countries, which combined represent almost 60% of the IMF´s credit outstanding.

On Tuesday, the opposition delegation and the Maduro government signed in Barbados two separate partial agreements in the context of the Norway-mediated negotiation process.

The first one critically includes assurances that all candidates that meet the requirements and processes established by the law will be allowed to participate in presidential elections set for 2H24.

While these are positive developments, we continue to be highly skeptical of the Maduro government allowing primaries front-runner María Corina Machado to participate.

The US announced a broad suspension of economic sanctions but warned that they would be reverted if a mechanism for the expedited lifting of all political bans on opposition candidates is not presented by November.

It also lifted the secondary market trading ban on Venezuelan bonds, which is likely to free significant pent-up demand from US persons that were previously forbidden from buying the debt.

BUY: It is hard to gauge the potential impact on bonds, but a 5-6 pts rise for sovereign paper and 3-4 pts rise for PDVSA would be well within reason.

Tensions with Israel are at their highest point in recent years after a war between Israel and Hamas erupted.

During the last week, confrontations have erupted near the Lebanon-Israel border, leaving some fatalities and dozens injured.

So far, Hezbollah has not joined the Israel-Hamas conflict and has linked their attacks to an eye-for-eye practice, responding to Israel’s “provocations”.

Hezbollah’s leader, Hassan Nasrallah, has been silent about the war, but Iran’s foreign minister has spoken about a growing possibility of them joining Hamas against Israel.

The US is trying to avoid an escalation scenario, which would be costly for Lebanon considering its large financial and infrastructure vulnerabilities.

While we do not change our BUY long-term recommendation at this time, we believe further stress could lie ahead as the conflict evolves. In the coming weeks, focus on Lebanon’s involvement in the war will be crucial.

Daniel Noboa won the presidential runoff with 52.01% of valid votes relative to 47.99% for Correísta candidate Luisa González.

Noboa, who was a surprise in the first round of elections, had a consistent performance that earned him first place in the runoff.

Noboa will inherit a government with several pressing issues and will have to secure political alliances to accomplish his agenda in between December 2023 and May 2025.

We believe Correísmo will continue to undermine the opposition to destabilize the government and pardon Correa’s charges so that he may run in the next elections.

In four months, the interest rate has increased by 21.50 pps, reaching 30% in September. In the same period, inflation climbed to 61.5% from 39.5%.

Despite the aggressive tightening in monetary policy, inflation has not receded, mainly due to higher energy prices and tax hikes.

While there is high uncertainty around the future performance of oil prices, we expect that they will remain at high levels.

The effects of the U-turn in monetary policymaking are still pending to be seen, nonetheless, we expect inflation to close the year at 64.5%.

HOLD: We are still optimistic about the U-turn in monetary policymaking, but don’t think that there is much room for further spread compression.

While the government has implemented favorable policies to promote tourism, the policies that stimulated growth to a greater extent are related to increasing public consumption and boosting credit by lowering reserve requirements.

El Salvador's growth is highly dependent on external components, mainly remittances and external demand for products and services, over which the government has no control.

Due to the better-than-expected results during 2Q23, we improved our economic growth projection for 2023 from 1.3% to 2.1%.

There are downside risks for next year, including the US economic slowdown and rising oil prices, therefore, we believe that the Salvadoran economy will slow to 1.9%.

HOLD: While macroeconomic and fiscal performances have exceeded expectations, we remain skeptical of medium-to-long-term debt sustainability.  

The National Bank of Ukraine adjusted downwards its inflation forecasts for year-end, and we also lowered our inflation expectations to 7.7% from 11.3%.

We welcome the central bank's decision to implement a more flexible exchange rate regime.

Besides focusing on the war advances, we expect Ukraine to concentrate on obtaining bilateral allies for grain exports to reach their destination.

BUY: Current prices remain below our expected recovery values and continue to be an attractive risk/reward proposition. 

In the 209 sovereign restructurings since 1978, the average haircut stands at 40.5%, but this result may be deceiving.

Market or private restructurings represent 79% of the cases, yet their average haircut stands at 30.3%.

Amongst the market/private restructurings, agricultural countries represent the largest share and exhibit the highest haircuts.

The average haircut in market/private restructurings has been increasing consistently and stands at almost 49% between 2010-2019.