President Erdogan was reelected with 52.1% of the votes, extending his mandate to a third decade.

We do not expect a U-turn in the unorthodox policy making nor the draconian capital controls that have been the order of the day.

As net reserves fell below zero for the first time since 2002, the president will have to face the reality of the exchange rate scheme's unsustainable nature.

FX-protected deposits accounts amounted to USD 121.3 bn as of May 17, and the current account posted a deficit of USD 23.5 for 1Q2023, a sign of a higher FX demand amid depleted foreign reserves.

While further capital controls remain an option, we believe that the government will be forced to allow the currency depreciate.

Nine prospective candidates have either declared or are expected to declare they will be running for the presidency to complete Guillermo Lasso’s term.

We have ranked them based on their strength as potential general election candidates, with the correístas leading the pack.

Early elections have been announced for August 20, 2023, with potential runoff elections scheduled for October 15, 2023.

The candidates aiming to finish Lasso’s term will not have much time to fulfill their proposals through concrete actions. 

BUY: Bonds are pricing in the worst possible scenarios while low prices and significant carry make for very low break even recovery values.

The immovable object of Lebanese politics has not met any unstoppable force to match it yet, and nothing has changed since our January report.

The Lebanese parliament still has not elected a president, while the required reforms to unlock the IMF deal are stalled because of the limited powers of the caretaker government.

Although there was a 90% devaluation of the currency in February, it was not enough to close the gap between the official and the black market rate of 94,500 USD/LBP.

The restructuring of the financial system also remains a pending task.

The IMF continues to delay the conclusion of the ninth review of its Pakistan program due to the lack of reforms and insufficient financing from other partners.

Pakistan's reserves have been declining and currently fall below adequate levels for the import coverage ratio, broad money ratio, short-term debt coverage ratio, and ARA metric.

Additional measures such as bilateral financing and the IMF pending disbursement are necessary to mitigate default risk.

With the odds against Pakistan continuing its external debt for much longer but prices already at deeply distressed levels, we recommend to HOLD the name.

ExxonMobil projects are proceeding as planned, and we believe it is pretty likely the country will reach its goal to produce 1.2 mbd by 2027.

Two audits of ExxonMobil expenses are a hot-button issue, while the High Court of Guyana stated that Exxon violated its environmental permit in Guyana due to its failure to provide sufficient oil-spill insurance.

Therefore, opposition leaders are fueling anti-foreign corporation sentiment ahead of the upcoming local elections in June.

While we believe that this kind of populist discourse does not pose a major threat in the short term, it could pose risks in the long term.

President Erdogan and his party outperformed, securing a majority in the National Assembly and coming very close to an outright first-round win in the presidential election.

Despite the economic headwinds, the President was able to maintain his voter base even in regions affected by the earthquake thanks to his promises on housing and employment.

In the unlikely event Kilicdaroglu wins the runoff, he will have a hard time fulfilling all his promises given the new composition of the National Assembly.

The lira is under pressure, and authorities introduced new measures to contain it. However, the TRY forwards imply a devaluation of 13% in the next 3 months.

After this week’s selloff, bonds are yielding around 10%, and we expect a policy shift after the runoff which, luckily, is around the corner. We therefore modify our HOLD recommendation to BUY.

After receiving financing assurances from its official creditors, Ghana has obtained the IMF’s board level approval for its USD 3 bn ECF.

This is an important step to complete the country’s debt restructuring, which started with the local currency debt exchange.

The next step would be the Eurobond exchange. Even after the recent rally (bonds are +14.9% MoM), we maintain our BUY rating for the name.

Eurobonds are trading near the par level as investors see a more fiscal discipline government. 

The IMF highlighted the country’s positive performance under the EFF and RSF programs and approved a new disbursement of USD 528 mn. 

President Chaves, in an interview, reinforced his willingness to maintain a low deficit and to keep the current path, which would allow the government to meet all IMF targets in 2023. 

Erdogan surpassed expectations and received 49.5% of the votes in the first round of the presidential election, followed by Kilicdaroglu with 44.9%.

The runoff is scheduled for May 28, and it seems clearer now that the president will be reelected, as we expected.

In the meantime, the lira fell slightly to USD/TRY 19.66 while the reference bond TURKEY 33 plummeted 7.75% to 81.3 cents.

While Jamaica broke tourist arrivals records in 1Q23, the Bahamas was slightly below 2019 levels, and Barbados still lags well behind the rest.

We estimate that Barbados' economy will grow 4.4%, thanks to a higher base effect than Jamaica and the Bahamas.

We maintain our growth projection of 4.2% for the Bahamas, but risks are tilted to the downside.

We forecast GDP growth of 3.4% for Jamaica, driven by the recovery of tourist arrivals and the resumption of Jamalco refinery operations.

The low yields offered represent an unattractive risk/reward proposition for most names in the Caribbean. We retain our SELL recommendation for the Bahamas and Jamaica and our HOLD rating for Barbados.

Ukrainian Eurobonds have continued to slide as the war stalemate continues and the market prices-in higher probabilities of a longer conflict. 

The good news is that fiscal accounts were better-than-expected last year and money does not appear to be Ukraine’s primary constraint for the war. 

However, certain Western intelligence quarters fear Ukraine might have limited success in regaining territory with its spring counteroffensive, which could translate into a longer stalemate.  

HOLD: current prices have more upside than downside given the recent downward repricing and the potential for the counteroffensive to surprise positively, but high uncertainty remains.  

The IMF released the country’s Article IV consultation, including updated estimates that are pretty much in line with our calculations.

The Fund highlights Trinidad’s exposure to energy price volatility and calls for “diversifying the economy, further fiscal consolidation, and a flexible exchange rate regime.”

Our view remains unchanged, as we believe the country will continue to weather the external headwinds without compromising its fiscal and solid financial position.

Trinidad’s mid-term outlook future depends on how successful its efforts will be in propping up energy output and LNG exports through the Venezuelan deal.

The National Assembly approved a resolution to continue with the impeachment trial of President Lasso by a simple majority.

The resolution proposed by the opposition came after the Audit Commission of the National Assembly did not recommend moving forward with the impeachment trial.

The final impeachment would take place in the next two weeks, and we expect President Lasso to call for snap elections and eventually, be removed from office.

Net international reserves are practically zero, while gross reserves have fallen to USD 34.1 bn, a seven-year low.

Although we believe an opposition victory in the elections is highly likely, they will inherit a distorted economy whose fragility will only be truly revealed after the elections.

The capacity and willingness of the new government to service the external debt remains to be seen.

Given this reality, we analyze the most critical aspects of the indentures of both the sovereign and the sub-sovereign Eurobonds, focusing on, but not limited to, their CACs.

We also highlight the risk that the Central Bank (BCRA) might not sell dollars at the official rate to the provinces, forcing them use their own USD o buy them through bonds.

The Sri Lankan government seems committed to meeting the IMF program targets, despite the recent delay in releasing its debt restructuring plan.

Inflation slowed down during 1Q23, and we expect the previous revenue measures to reduce the fiscal deficit.

Foreign exchange reserves and the Sri Lankan rupee have strengthened since the government began carrying out the prior actions under the IMF’s program.

Our EMFI Core Index lost 1.1% in April, with 9 countries in the red and 11 gaining ground. 

ECUA (+12.1%), ZAMBIN (+9.7%), and ELSALV (+9.0%) outperformed, while ARGENT (-11.3%), EGYPT (-9.3%) and LEBAN (-8.4%) crashed. 

We maintained our focus on the most critical political and macro developments, with special emphasis on the progress of IMF programs and increasing risk in some of the more distressed countries followed. 

Our Strategy Team presented two reports analyzing the CACs in Ghanaian and Nigerian Eurobonds, and changed our SELL recommendation to HOLD in Suriname as progress in its restructuring process seems imminent.  

Since March, Egypt is waiting for the second tranche of the EFF program with the IMF.

The delay is likely related to the slow advance of the privatization program while there is pressure for another currency’s devaluation.

We believe that, ultimately, the government would have baby steps in the state asset sales as they are desperately needed for FX funding.

However, we also expect further delays as the privatization program represents greater disadvantages rather than perks for the military, an essential group throughout Egypt’s history.

We see an increased likelihood that geopolitical allies could stop increasing their exposure to the country, therefore cutting a key source of external financing for the country. However, given the low prices of the bonds, we maintain our HOLD rating for the name.

The Bukele administration has reduced primary spending given its limited financing sources.

Excluding the January bond payment, government expenses during 1Q23 were 6.5% lower than the same period of last year.

During the first quarter of the year, tax revenues decreased by -0.5%, representing a 6.7% drop in real terms.

We maintain our forecast of an overall deficit of 3% of GDP while estimating a primary balance of 1.4%.

We believe that the government will try to use all the scarce sources of financing available to make ends meet, but we do not believe that an IMF loan will be one of them.

Economic Minister Sergio Massa announced yesterday that the government will use international reserves to intervene in the parallel FX markets.

This was strongly discouraged by the fund it the latest fourth review of the extended fund facility (EFF).

According to some journalists close to the government, the working assumption now is that the agreement is in tatters.

The Argentine government was already trying to renegotiate it given that it failed to hit several targets and was attempting to receive this year disbursements in advance.

President Lasso has declared that he would call for muerte cruzada if he does not gather enough support in the National Assembly ahead of the impeachment vote.

This would allow him to rule for around six months through executive decrees but with a high likelihood of protests until the new elections.

His low popularity can be explained by the security and health crisis alongside the austerity measures introduced in the first two years of his term.

It would be easy for the opposition to stir up the masses and encourage protests, but that risks heightening volatility for the next government and could derail any further fiscal consolidation.

BUY: The country’s Eurobonds posted gains on Wednesday as the government announced a much-awaited debt-for-nature swap.

Ukraine officially became the first nation in active conflict to receive concessional financing from the IMF, as part of a USD 115 bn 48-month financial aid package. 

Foreign exchange reserves reached an eleven year high of USD 31.9 billion.  

The war is at a stalemate of sorts, with Russia having failed to achieve its strategic objectives and Ukraine still preparing its expected spring/summer counterattack. 

Bond prices have lost 3 points YTD, while investors wait for the talks to restructure the country’s debt and resume payments by late 2024. 

Oil output fell below 1 mbd last month to its lowest level since 2003.

The decline was driven by maintenance on Dalia oilfield, thus, we expect output to jump back in April.

Energy minister José Alexandre Barroso said the government intends to mitigate the natural rate of decline by making drilling campaigns and adding new fields.

 The government's target for 2023 is to produce 1.01 mb/d according to Barroso, even below our previous estimate of a flat production at 1.15 mb/d.

President Erdogan and the AKP released their election manifesto with little detail and vague statements about their economic agenda, while Kilicdaroglu announced a series of economic development projects that would boost the economy if he wins.

We think the lira will depreciate significantly no matter who wins, but the winner will condition how bad the fall will be.

We believe that there is no sign to believe that there will be a change regarding policymaking and there will not be an interest rate hike if Erdogan wins.

In that scenario we expect economic growth to be under pressure and the lira instability to continue alongside notable stress on the external figures.

An opposition victory would mark a return to orthodoxy in economics, producing a honeymoon effect that we believe would give a boost to the economy.

Turkey has maintained market access, even in the midst of high political and economic uncertainty, allowing it to effortlessly deal with its debt service, but yields averaging 8% limit the upside, so we maintain our HOLD rating.

Uncertainty remains regarding Tinubu’s preferred economic policies, with the elected president taking office on May 29.

Given the country’s high interest burden and the high spreads its bonds have, the country’s sovereign bonds have become a risky investment requiring additional contractual due diligence.

We take a look at the Nigerian Eurobond indentures, paying special attention to their CACs.

We find that all of the bonds but one contains 3^rd generation CACs, which allow the issuer to modify the terms of the bonds with the support of a supermajority of bondholders.

Sources cited by Bloomberg indicate that a deal to restructure Suriname’s Eurobond debt is getting closer and recovery values will be in the 75-80% range.

This would indicate that bondholders have prevailed in securing high recovery, despite the government's previous offers of around 49.1%. 

Two critical questions remain open at this stage: the coupon structure on the new bonds and the weight of Value Recovery Instruments (VRI) within the restructuring package.

Given these developments, we switch our recommendation from SELL to HOLD. Rumored recovery values are in line with market prices, which limits the upside potential for the notes, but the resolution to the negotiations appears near, which also limits the downside.

Pakistan’s crisis has deepened as political and economic instability persists while the approval of the ninth review of the IMF’s staff-level agreement is still pending.

We believe the political uncertainty is hurting the country’s economic outlook, and a truce, which looks unlikely now, might be needed to steady the economy.

Continued financing from geopolitical allies, particularly Saudi Arabia, the UAE, and China, is crucial for Pakistan to move forward with the IMF program.