The Caribbean has grown at an average rate of 2.6% in the last 10 years, but the Bahamas (1.3.%), Barbados (0.9%), and Jamaica (0.9%) underperformed.

Barbados has received the least damage to its economy as a result of hurricanes, whereas Jamaica and the Bahamas have been more affected.

Given the low long-term growth track record for these countries, it is hard to see them growing at fast rates while they consolidate their fiscal accounts.

Ukraine’s 2025 draft budget reflects expectations that the war will continue into 2025 and highlights the need for foreign funding to support military and economic efforts.

We expect recent tax reforms to raise tax collections to 69.5% of total revenues in 2025, from 50.4% in 2024.

We also expect expenditures to fall from 61.6% of GDP in 2024 to 56.2%, owing to cuts in pension funds, subsidies, and social security, as well as a more restrained approach to military spending amid uncertain financing.

With high uncertainty on foreign funding and the development of war, we expect the fiscal deficit to improve from 18.2% in 2024 to 15.2% of GDP in 2025, though financing needs could be left with a USD 8 bn gap.

BUY: Without ignoring the war risks, Ukraine's low short-term Eurobond debt service and attractive yields offer a compelling risk-reward opportunity. 

The IMF raised its global growth forecast to 3.2% in 2024 (+0.1 pp vs. the April edition) and maintained its 2025 projection at 3.2%.

Middle East and Central Asia and the Sub-Saharan Africa were the regions with higher downward revisions (-0.3 and -0.2 pp).

Latam & the Caribbean and Emerging & Developing Europe were both revised up by 0.1 pts for 2024.

With the global battle against the inflation almost over, the IMF highlights downside risks related to “escalation in regional conflicts, monetary policy remaining tight for too long, a possible resurgence of financial markets volatility, a deeper growth slowdown in China, and the continued ratcheting up of protectionist policies”.

After a challenging 2023, Angola is seeing improvement in macroeconomic indicators, boosted by higher oil output and prices.

In 1H24, GDP posted a 4.4% cumulative growth, which led us to adjust our forecast from 1.1% to 3.3% for the full year. However, we see this growth decelerating in 2025, with a stagnant oil production.

Inflation remained high at 29.9% in September but will decelerate due to central bank intervention on the FX rate, which has regained some ground after hitting a 25-year high.

Both fiscal revenues and expenditures show better-than-expected performance, which presents upside risks for our current forecast of 1.1% of the GDP surplus.

The current account posted a notable USD 3.5 bn (3.4% of GDP) surplus vs USD 547 mn (0.6%) seen in 1H23. We upgrade our forecast from 4.7% of the GDP to 5.3%.

HOLD: We believe 715 bps Z-spreads for the 8-year tenor and an attractive 9.8% current yield are justified given oil sector exposure and adverse liquidity ratios.

The Salvadoran government has presented its budget proposal for the 2025 fiscal year, amounting to USD 8,401.37 million, reflecting an increase of 3% in comparison with the approved 2024 budget. 

This budget marks a key shift in the country’s public finances: the commitment to achieving a zero fiscal deficit for the first time since the beginning of President Nayib Bukele's administration. 

Finance Minister Jerson Posada presented the plan to the Budget and Finance Commission, emphasizing the importance of continuing fiscal consolidation with a focus on spending efficiency and without the need for additional financing. 

With these actions, Bukele’s government is paving the way for a potential agreement with the IMF, though one of its main challenges will be strengthening mechanisms for transparency and accountability.

BUY: Liquidity concerns are greatly decreased after the reduction of front-end outstandings in the buyback operation and current yields further along the curve are at an attractive 9%.

Ghana has completed the Eurobond debt exchange, issuing 5 new bonds for a total nominal amount of USD 9.4 bn.

The offer was accepted by 98.6% of bondholders, almost all of which opted for the “Disco” option.

Fitch and Moody’s upgraded Ghana’s credit rating to CCC+ and Caa2 respectively.

BUY: With an exit yield of 10.8%, we see upside to the complex and think it should converge to the levels seen in Zambia.

In September, the NNPC increased the petrol price by 24.1% to an average of NGN 1,030 per liter, fully recovering costs, which means a total removal of fuel subsidies.

We believe that the full removal of fuel subsidies will fuel inflation in the short term. We estimate that inflation will reach 34.2% by the end of the year.

Although the FX market is currently under pressure, we believe it will ease in the following months due to lower imports of refined products.

There are downside risks related to growing social unrest, which could lead to a policy reversal. Nonetheless, we are optimistic and expect Tinubu to sustain current reforms.

HOLD: We see credit spreads in the 614-bp area for the 9-year tenor as justified given liquidity ratios while noting that the country could tap international markets to roll over upcoming maturities.

In September, the Treasury reported another overall surplus, accumulating 0.5% of our estimated GDP so far in the year.

Expenditures fell by 25.2% YoY in real terms, slightly outperforming the results of August and July.

Revenues fell only 6.6% in real terms despite the 10-pp reduction in PAIS tax,  boosted by the phenomenal revenue collection of the Wealth tax.

Despite the lack of political support in Congress, the government has managed to convince the market that it will produce an overall balance in 2024 and 2025, which has boosted the Eurobond rally.

We maintain our BUY recommendation even after the 67.2% YTD total return, as we see the risk/reward balance as still attractive.

Sri Lanka’s GDP grew by 4.7% YoY in 2Q-2024, marking a steady recovery after the 2022 crisis, but we think that it has hit a peak.

Household consumption, which is the main growth driver rose by 4.2% YoY in 2Q-2024.

Tourism is also recovering, supported by policies including lenient tourist visas, but remains below 2018 record levels.

We believe GDP growth has hit a peak and revised our previous 2024 forecast from 4.8% to 4.2%.

We forecast a 3% YoY GDP growth for 2025, supported by stable investment, inflation easing, consumption growth, and tourism recovery.

Eurobonds performed good after the presidential elections posting a 11.5% total return (+5.7 pts) the last month.

Given the characteristics of the latest agreement with the bondholders, we don’t see many incentives for AKD to backtrack on the deal.

We maintain our HOLD rating  as the president has limited incentives to deviate from the existing debt agreement but we are cautious due to the complexity of the MLB side.

Bondholders tendered a total nominal of USD 1.76 bn, of which the government accepted USD 1 bn to be repurchased at a cost of USD 940 mn including accrued interest.

The government opted to buy bonds across the curve, without showing particular focus on any segment.

Debt service savings amount to USD 1.3 bn in NPV terms at a 5% discount rate.

Confirmation of the operation remains contingent on the approval of a JPM loan; a full analysis of the sustainability impact requires information on the funding operation.

BUY: With the low outstanding left for ELSALV 25 USD 100 mn) and ELSALV 27 (USD 387 mn), a default in the short term seems even more unlikely.

Egypt’s inflation has increased slightly for the past couple of months, going from 25.2% in June to 26.4% in September.

Such acceleration was expected, as the impact of the recent subsidy cut that the government introduced ahead of the IMF’s EFF program went into effect.

However, we believe it to be a temporary uptick, as core inflation has kept decelerating while the currency remains market-determined.

Likewise, thanks to the increases in the monetary policy rate, the growth rate of the money supply (M1) has been decreasing from a peak of a YoY increase of 49.2% in February to 26.0% in August.

We currently expect inflation to end 2024 at 25.9%, but a base effect in 2025 will help the disinflation process despite the downside risks ahead.

SELL: With Z-spreads at 711 bps for EGYPT 33, we find the credit unattractive given the high debt and interest burden, a considerable Eurobond debt service, and worryingly high twin deficits.

The state budget for Costa Rica in 2025 amounts to CRC 9.46 tn (USD 17.19 bn or 18.0% of GDP), 1.0% higher than the approved budget for 2024. 

Sustainable revenue sources (mainly taxes) as a share of the budget increased from 69.9% to 73.1%, while borrowing decreased from 21.6% to 18.6%. 

Key sectors such as the Judiciary, Public Security, and the Ministry of Justice will receive significant allocations amid the security crisis, but other ministries will face budget cuts. 

One of the biggest challenges this year for the Costa Rican government will be balancing fiscal austerity in sectors with greater demands, such as education, against potential tensions with advocates for social benefits. 

SELL: Bonds are trading with a tight spread over US bonds and don't adequately compensate for the inherent credit risks of the country. 

Jamaica’s growth continued slowing down with a weak 0.2% YoY for Q2-2024.

The tourism minister recently  stated that the country received close to 3 mn international visitors by late September, “marginally ahead of last year’s performance”

We revise our 2024 GDP growth forecast to +0.5%, which would be a faster-than-expected convergence to the long-term growth rate.

The current account for Q1-2024 accumulated a USD 229 mn surplus, 21.7% up from Q1-2023 and matching our prior expectations.

The IMF approved a new USD 7 bn EFF program for Pakistan, aiming to support the country's economic recovery and stability.

We anticipate that the program will include tough economic measures such as raising tax collection, reducing government spending, and privatizing state-owned enterprises.

The government has already taken the first step by eliminating 150,000 government jobs through a combination of ministry closures and mergers.

In our view, the government's commitment to reform is positive but Pakistan is not out of the woods yet as the program entails the risk of social unrest and policy slippage.

With the IMF program on track, we like the prospects for the credit, especially for PKSTAN 25. We switch our stance from HOLD to BUY.

In line with our expectations, Total and Apache announced their Final Investment Decision for Block 58 on October 1.

The block could allow Suriname to significantly boost its oil output from the current 16 tbd to 220 tbd by 2028 under our baseline scenario.

If this forecast materializes, we see the project bringing in USD 22.4 bn in revenues during the first five years of oil production, of which USD 8 bn would go to the government.

The announcement boosted the royalties-tied SURINM 9% 50 to trade at 101c, 13 pts up MoM, but the vanilla SURINM 7.95% 33 held steady around 97c (to yield 9.0%).

BUY: With think momentum in the credit may lose some pace in the aftermath of the announcement, but remain constructive due to the potentially transformative effect of oil developments on the broader macro.

Turkey’s external accounts have outperformed our expectations, as the current account deficit has shrunk by 61.8% YTD compared to 2023.

Underlying this improvement, imports have decreased by 10.5%, while exports modestly grew by 3.3%, even if they are unlikely to meet the government’s target of USD 267 bn for year-end.

Energy imports continue to fall, driven by international prices, and have posted a YoY decrease of 6.9%, while energy exports rose 26.6%.

Tourism revenues also remain strong, as they have grown 12.5% in YoY terms. So far, the Middle East conflict has not affected tourism activities, and we believe that it will remain that way.

We upgrade our current account deficit estimation from 3.8% to 2.5% of GDP.

Despite the healthy fundamentals, we think that valuations have nearly peaked and therefore modify our rating to HOLD from BUY.

Finance Minister Jonathan Menkos Zeissig recently presented the General Budget Proposal for 2025 to Congress, the first of the Arévalo administration. 

The draft includes a fiscal deficit of 3.1%, which would be the highest since the COVID-19 pandemic of 2020. 

The proposed budget is controversial, as it includes aggressive rises in most expenditure categories and debt financing of operative expenses. 

We believe the proposal will be rejected by the Constitutional Court, leading to an extension of the current budget. 

Our baseline scenario contemplates a 1.4% of GDP fiscal deficit, similar to what has been posted in the last three years. In our alternative scenario, we estimate a higher 2.8% of GDP deficit.

HOLD: Positive-to-neutral liquidity and solvency metrics indicate a low risk of default in the short term, justifying the 290 bps Z-spreads for GUATEM 34. 

Our EMFI Core Index gained 2.0% in September, with 18 names rising, 3 holding steady, and 1 losing ground. 

LEBAN (+19.5%), ARGENT (+8.7%), and ELSALV (+7.6%) were the month’s top performers, while VENZ (-1.0%) and ANGOL (-0.1%) underperformed. 

Our Research Team analyzed the Oil & Gas industry in our commodity-producer countries, started covering Argentina´s midterm election, and investigated the fiscal situation in the Caribbean. 

We also evaluated Ecuador´s willingness to issue a new green bond and reassessed our stance on Egyptian Eurobonds. 

Ecuador's GDP shrank by 2.2% in Q2-2024 compared to the same period in 2023, displaying a slowdown driven by weaker domestic consumption and power cuts.

The Central Bank reported a 2.2% YoY decline in household consumption, an 8.2% YoY fall in investment, and a 0.6% YoY decrease in government spending.

We downgrade our baseline 2024 GDP forecast to -0.6% GDP growth, from 0.5% previously and a 0.6% YoY GDP growth in 2025. However, an alternative scenario with persistent power cuts could result in a -2.4% GDP contraction in 2025. 

Power cuts could negatively impact Noboa’s chances of reelection, but he remains the frontrunner for the 2025 general elections.

With the likelihood of Correísmo regaining power still low and the attractive current yields, we maintain our BUY rating for the name.

Marxist political outsider Annura Kumara Dissanayake won the presidential elections of September 21 with 42.3% of votes.

After taking office, he dissolved parliament and called for early elections to strengthen his legislative influence on November 14^th.

The new president has stated a desire to re-open negotiations with the IMF to obtain more flexible fiscal targets.

He will also review the latest debt restructuring agreement made by the previous president with the sovereign bondholders.

Eurobonds have been under high volatility during the past month but are currently trading roughly 1.7 pts up MoM.

After a year of contained military engagement, Israel has rapidly escalated the conflict with Hezbollah, killing Hassan Nasrallah and launching “targeted raids” on the border.

Israel looks to be all-in on its objective of restoring security on the northern border by halting attacks from Lebanon.

Major international geopolitical actors have called for a ceasefire but that remains incompatible with Israel’s objectives of eliminating Iran-backed militias.

Hezbollah is expected to name a new leader in the coming hours but has remained silent on how they will respond to recent attacks by the IDF.

In our baseline scenario of a prolonged conflict, we expect a 2.1% contraction in 2025. In the alternative cease-fire scenario, we still expect a 1.1 contraction.

HOLD: While cash prices remain attractive relative to potential recovery values, we remain unconvinced that political and economic change is forthcoming and weigh the human and material impact of the conflict.

On Friday, Special Master Pincus presented its recommendation to approve a USD 7,286 mn bid for full ownership of PDVH by a subsidiary of Elliott Investment Management.

The purchase price is very low relative to prior valuations, especially considering that it includes the PDVSA 20 claim. It could cover 9-12 of the 26 claims in the Crystallex auction priority list.

Payment to PDVSA 20 bondholders would depend on how the claims are settled, which could happen through a negotiated settlement or PDVSA 20 litigation going to completion.

BUY: In our view, the risk balance remains tilted to the upside, even if extension risk has increased.

Zelensky plans to present its international allies with a “victory plan” to end the war, which intends to help secure further aid to finance the conflict.

Around USD 300 bn in Russian assets remain frozen by the West, but efforts to deploy them for Ukraine’s benefit remain stagnant due to legal considerations.

We estimate Ukraine’s financing needs at USD 31.4 bn for 2024 and USD 28.3 bn for 2025.

Profits from frozen assets could provide USD 3-4 bn and already-committed aid USD 16.7 bn, which is insufficient to cover financing needs and leaves a USD 7.6 bn gap in 2025.

BUY: Attractive yields and low Eurobond debt service in the short term provides an attractive risk/reward for the name. 

We take a look at several macro, solvency, liquidity, and financial metrics for the name, comparing it to its peers.

We find it expensive given the high debt and interest burden, a considerable Eurobond debt service, and worryingly high twin deficits.

The huge amount of inflows in 2024 helped the domestic debt roll over, but might complicate things in the future in a typical “hot money” fashion.

Our view is that Egypt should trade more like a CCC, and that the risk-reward on Egyptian Eurobond is not attractive at all. We modify our rating from HOLD to SELL.

The fiscal deficit widened to USD 147 mn (-0.5% of GDP) in 1H24, from USD 28 mn (-0.1% of GDP) in 1H23.

The second half of the year looks even more challenging due to seasonal factors and we expect an overall deficit of -5.8% of GDP during 2H24.

We maintain our forecasts of an overall fiscal deficit of -6.3% of GDP and a primary balance of -5.9% for the full year.

Nonetheless, we believe there is no reason to worry since Guyana is projected to grow at double-digit rates for at least the next five years, and the government will be able to reduce fiscal deficits easily if it wants to.

Preliminary fiscal data points to an overall deficit of USD 186.7 mn in FY 2023/24, equivalent to 1.3% of their estimated GDP.

The overall deficit goal is set to 0.5% of GDP for FY 2024/25, while our current projection is a little more optimistic, at 0.3%.

We expect the debt-to-GDP ratio to decline to 88.3% by the end of FY 2024/25, from the 111.1% peak observed during the pandemic.

The latest polls show a virtual tie between the leftist outsider, Dissanayake (36%), the opposition leader, Premadasa (32%), and the incumbent, Wickremesinghe (28%)

Dissanayake leads the younger vote and, despite his differences with the IMF, has said he would continue with the agreed program.

Premadasa wants to renegotiate the IMF program but wants to emphasize tax and welfare redistribution.

Incumbent Wickremesinghe has been narrowing the gap in recent polls and represents continuity.

Our baseline scenario is a runoff with 2 of the 3 main candidates, Dissanayake vs. Premadasa being the most likely scenario and Premadasa vs Wickremesinghe being the least likely scenario.

We maintain our HOLD recommendation for the name, as bond prices converge to recovery values on publicly available terms. 

After July’s deficit, the Milei administration returned to the overall surplus path in August.

The cumulative fiscal surplus from January to August reached 0.4% of our estimated GDP, with a primary surplus of 1.8%.

Expenditures fell by 24% YoY in real terms, offsetting the 14% decrease in revenues.

We expect the government fiscal performance to deteriorate after the 10pp reduction of the PAIS tax but still be able to end the year with a surplus.

We screen CCC-rated credits on several macro, solvency, liquidity, and financial metrics.

While Egypt and Pakistan seem expensive relative to their peers, the latter owes most of its short-term external debt service to institutions and bilateral creditors, making it easier to roll over.

Ukraine looks attractive after the restructuring, but we have to keep an eye out for the elephant in the room.

We remain positive on Argentina and Ecuador, while we are on the expectative for a better entry point in the case of Bolivia.

On September 16, President Bukele announced his intentions to reach a fiscal balance during the next year, copying the successful strategy of Argentinean president Javier Milei.

The government has been cutting jobs in the public sector. According to the Movement of Dismissed Workers, there has been a total of 2,250 dismissals since June 1.

The Salvadoran government's fiscal deficit reduction efforts are a positive sign for securing an IMF agreement, though governance and Bitcoin risks are still under discussion.

We remain cautious about the program's success due to a lack of transparency. Without clear disclosure from the government, it's hard to assess the fiscal deficit impact of upcoming measures.

Recent developments indicate a strong probability that an IMF program will (finally) become a reality; we move from HOLD to BUY in anticipation, as we still see some upside if this materializes.

Graf von Luckner, Meyer, Reinhart, and Trebesch banded together in a recent paper that examines two centuries (1815-2023) of data on creditor losses or “haircuts”.

We test their predictive model for haircuts with recent out-of-sample data from Ghana, Sri Lanka, Ukraine, and Zambia.

We find that the author’s model had an error around 8.2 percentual points from the estimated haircuts and all four episodes were close to the paper’s median of 40%.

We also note that given the ongoing or recent nature of these restructurings, we do not know if there will be subsequent treatments on any of these cases, which could result in higher haircuts down the line.

Furthermore, given the heavy contingent component on these restructuring cases, which has become increasingly common in restructuring episodes, haircuts could end up being higher or lower than currently estimated.

Costa Rica ended 2023 with the highest number of homicides in its history and has recorded 615 homicides up to September 13 this year.  

As the 2026 general elections approach, the security issue will be at the centerstage and could significantly shape the election result. 

Although Costa Rica's 2023 homicide rate (17.2 per 100k) was well below that of Ecuador (44.5), back in 2021 the latter was 14.0 per 100k, which shows that security crises can develop rapidly. 

Last week’s approval of the pension reform, along with the necessity to employ the executive veto to prevent its implementation, highlights Milei’s limited political influence in Congress. 

Next year's mid-term legislative elections are an opportunity for the Milei administration to gain a foothold in Congress and reduce its dependency on economically-costly political agreements. 

Public confidence in the government has been surprisingly resilient despite Milei’s firm commitment to austerity and pushing forward theoretically-unpopular reform. 

Before the legislative election, the government will likely struggle to pass key bills, the 2025 budget and any new IMF agreements. 

On September 2, President Bernardo Arévalo submitted the 2025 budget draft to the Congress.

The proposed draft contemplates a fiscal deficit of 3.1% of the GDP, a deterioration of 2.3 pp compared to our 2024 estimation.

This is mainly explained by a notable increase in expenditure, with a similar number as that registered in 2020, during the COVID-19 pandemic.

To be approved, the budget draft requires a simple majority (81 votes), which we believe it will get, following past budget decisions in Congress.

Nonetheless, the main roadblock is the Constitutional Court, which has overruled several expansions to the 2024 budget. We expect a similar scenario this time.

HOLD: Positive-to-neutral liquidity and solvency metrics indicate a low risk of default in the near term, justifying the Z-spreads at 327 bps for the bond maturing in 2034. 

We present a devaluation scenario for Pakistan's exchange rate from PKR/USD 285.8 PKR to 308.9 PKR in FY 2024-25, driven by rising imports and easing monetary policy, which could impact debt ratios.

Under our devaluation scenario, nominal GDP would decrease from USD 374.4 bn in FY 2023-24 to USD 363.3 bn FY 2024-25 with total debt standing at 79.0% of GDP (49.5% being domestic).

Under a scenario without devaluation, nominal GDP would increase from USD 374.4 bn to USD 423.4 bn with total debt standing at 81.3% of GDP (52.9% is domestic debt).

We anticipate that a possible devaluation in FY 2024-25 could relieve domestic debt pressures but strain overall GDP and load external debt, as the government works to meet IMF targets.

HOLD: While we do not foresee a reduction of the Z-spreads given the worrying debt ratios, yields are sufficiently attractive to partially compensate for the risk.

In November 2022, we started talking about T&T's ambitions to purchase Venezuelan gas to cover its requirements for LNG processing. 

Time goes by and the first gas is expected to arrive in the islands by end 2025 , but further obstacles lie ahead. 

While the US granted a two-year license to BP to operate and develop the Cocuina and Manakin fields, Shell has not made an FID waiting for a longer license. 

Likewise, a Trinidadian high court judge ruled in favor of ConocoPhillips for its USD 1.3 bn claim against Venezuela, casting a shadow over future gas projects with Venezuela. 

Trinidadian authorities deny it will affect the Dragon field project, but given the turbulent political context in Venezuela, we believe there will be further delays.

Jamaica's fiscal performance has been strong over the last few years, which has helped the country put the debt-to-GDP ratio on declining trajectory. 

The expected fiscal surplus (5.8%) is significantly better than our estimated debt stabilizing primary balance (-0.2%), which means the debt/GDP ratio will continue declining in the short-to-mid-term. 

However, bond prices are very high and they offer tight spreads to treasuries, which make them unattractive in the context of natural risks associated with the hurricane season. 

The Noboa administration is looking to complete another “debt-for-nature” swap, currently being worked on by Goldman Sachs and Bank of America.

In last year’s Galapagos debt-for-nature swap, Ecuador used a USD 656 mn loan and USD 85 mn guarantee to repurchase a USD 1,630 mn nominal value. 

The announcement earns the administration another point with the market following the approval of the EFF.

As of the writing of this note, bonds are around half a point up against Yesterday’s close, with stronger action in the short end than in longer tenures.

Our EMFI Core Index gained 2.4% in August, with 17 names rising and 3 losing ground. 

ARGENT (+8.5%), ECUA (+5.0%), and ELSALV (+4.5%) were the month’s top performers, while SRILAN (-6.4%), LEBAN (-3.3%) and VENZ (-2.0%) underperformed. 

Our Research Team monitored political developments in Sri Lanka and Bolivia while keeping an eye on fiscal performance in Argentina and Ukraine. 

We also evaluated Ukraine's debt restructuring proposals and reviewed Jamaica’s catastrophe bond in light of the upcoming hurricane season. 

Authorities have renewed efforts to boost oil and natural gas production, with new incentives intended to keep exploration and production activities.

The Egyptian oil industry shows a deep decline in output, as does the natural gas industry, despite the discovery of the Zohr field.

Furthermore, in the first half of the year, oil and derivatives exports declined by 62.2% due to lower output and prices.

The state company, EGPC, continues to face financial constraints, amid mandated subsidies on energy and large arrears to foreign partners.

We are pessimistic about the goal set by authorities to increase oil output by 9% this fiscal year.

HOLD: Although the long-end of the curve offers interesting current yields, high duration exposes the bonds to large price drops, which is critical given the worrying debt ratios.

After an amazing start of the year, in which the central bank bought large quantities of hard currency in the open market, accumulation seems to be running out of gas.

This administration seems to be prioritizing containing inflation rather than strengthening its external position, which has helped boost Milei’s popularity.

Given updates on the government’s capacity and willingness to pay, we update the probability of our different scenarios for the bonds.

BUY: We estimate a probability-weighted average fair value in the 49-60c range (depending on tenure), still above the current market prices of 41-60c. We see ARGENT 35 and 38 as offering the best risk/reward propositions.

Guyana will likely become the largest oil producer per capita in the world, with an average oil output of 726 bd per 1000 people in 2024.

In 2023, Guyana was ranked 6th among the countries most dependent on fuel exports.

According to World Bank data, Guyana was ranked 7th in 2021, with oil rent representing 22.1% of GDP. We estimate that oil rent will rise to between 39%-45% of GDP in 2024.

If the rest of the countries maintain a similar level of oil rent as a share of GDP, Guyana would rank as the second or third country that most heavily relies on oil.

The current account deficit in Q1-2024 rose 51.5% (USD 65 mn) compared with Q1-2023, despite services exports reached an all-time high.

The surge in tourism experienced during past years has started to moderate. In Q2-2024, 2.73 mn tourists arrived in the Bahamas, a 13% increase compared to Q2-2023.

We expect tourist arrivals to reach 11.53 mn by the end of the year, 4.5% more than last year’s.

We forecast that the current account deficit will narrow to 6.5% of GDP this year from 7.6% in 2023.

Ukraine has made significant progress in implementing structural reforms under the IMF's EFF program, which is crucial to restore macroeconomic stability and advance towards EU membership in the longer term.

Ukraine has also met all the QPC and IT goals, except the social spending target due to increased military expenditures and other fiscal pressures.

Ukraine has met 20 out of 35 structural benchmarks on time, with the IMF showing flexibility on 5 targets given the ongoing war.

We think that the main challenges for Ukraine will be maintaining fiscal and economic reform amidst a persistent conflict and strengthening its position to avoid potential reductions in international funding in the short term.

BUY: Our valuation of the final restructuring proposal is 5.3 pts above current prices, providing potential upside for the bonds. 

The Climate Prediction Center predicted an above-normal hurricane season in the Caribbean. 

Jamaica and the World Bank renewed a 3-year catastrophe bond to provide insurance coverage against storm events. 

The bond's coupon structure includes a fixed rate plus the SOFR rate and transfers risk to the market. 

The bond's payout is triggered when a storm's central pressure falls below a certain threshold in designated storm zones. 

Hurricane Beryl came close to triggering the bond's payout but fell short of the required intensity. 

The MPC kept the policy rate unchanged at 50% for a fifth consecutive time.

The YoY inflation rate slowed down from 71.6% in June to 61.8% in July, aided by a favorable base effect.

We believe this trend will continue for the remainder of the year and expect inflation to reach 46% by year-end.

Headwinds from inflation in services represent a roadblock to the authorities’ target of 38%.

We reaffirm our forecast of 3.1% GDP growth, as private consumption (the main contributor to the GDP) has been decelerating due to the effects of the tight monetary policy stance.

BUY: We like the spreads on offer set against the backdrop of improving fundamentals, including stronger international reserves, slower inflation, and solid GDP growth.

After suffering considerable currency volatility in 2023, Angola appears to have attained a degree of stability this year, and bond returns have responded positively.

Through a combination of fiscal discipline, bilateral and multilateral funding, and domestic debt financing, the credit has been able to muddle through so far.

However, its debt metrics – particularly those related to liquidity - remain concerning and are highly sensitive to fluctuations in the real exchange rate.

HOLD: After evaluating various exchange rate scenarios and stress-testing them with a potential drop in oil prices, we believe that Z-spreads at 730 basis points for the ANGOL 32 are warranted.

Oil exports were boosted by higher prices in 1H24 but faced setbacks due to pipeline shutdowns.

Mining is now the fourth-largest export sector of Ecuador but illegal mining tied to criminal organizations threatens the progress made so far.

Lead and copper comprise 42% of total mining exports, followed by gold with 33.2%, and other minerals with 24.6%.

BUY: Bonds posted strong gains during the month, but pricing remains attractively low and current yields have risen with the recent step-up in coupon rates.

On August 9, the government released the final tender offer, which describes the exact exchange package that is offered to holders of each of the old bonds.  

At a 14% exit yield, we find 5.3 pts of upside on a weighted-average basis, which exceeds the average market price of 32.5 cents.  

This likely implies that the market is pricing in a higher exit yield, which we estimate at 16.4%.  

Given the potential for spread-compression after the exchange and additional gains from value-recovery clauses, we maintain our BUY recommendation. 

The Climate Prediction Center (CPC) gives  90% chances of “above-normal activity” during the hurricane season that began on June 1 and will end on November 30.

11 hurricanes are expected this season, higher than the average of 7 hurricanes during the period 1991-2020.

5 storms, 3 hurricanes and 1 major hurricane have been recorded in the North Atlantic region so far with no major damage.

Tensions between Israel and Hezbollah keep rising, especially after the killing of one of the founding members of the armed wing of Hezbollah, Fuad Shukr.

Although the conflict has not escalated into a full-scale war, Lebanon’s economy is already enduring severe consequences.

Per our estimates, exports were down by 20% YoY in May, while imports declined by 37.9%.

Private sector activity also worsened since the war started and annual tourism revenues are expected to decline by 50% compared to 2023.

In light of the negative economic performance so far this year, we reaffirm our scenario of a 1.7% economic contraction for 2024.

Given no prospects for a near-term restructuring, we change our recommendation from BUY to HOLD waiting to reassess once there is more clarity on the geopolitical situation.

After 6 consecutive monthly fiscal surpluses, the Milei administration presented its first overall deficit.

The government still managed a 7^th consecutive primary surplus but heavy bond interest commitments weighed down on the overall result.

The cumulative fiscal surplus reached 0.4% of our estimated GDP, while the primary surplus stands at 1.6%.

Expenditures fell 24% YoY in real terms, while revenues fell just 5% YoY.

We expect the government to keep accumulating fiscal surpluses in the next 4 months to face December with a cushion for an overall fiscal balance in the full year.

FX shortages have been a structural problem in Trinidad and Tobago for ages. 

With lower energy prices, FX supply keeps getting limited upon a high demand that is far from being covered with the current heavily controlled foreign exchange system. 

The oil trade balance surplus has been decreasing, while the deficit of the non-energy trade balance keeps increasing. 

Nonetheless, international reserves remain more than adequate, so we believe the government will discard any devaluation in the short term.

HOLD: The country presents a mixed economic outlook with neutral to positive indicators plus a low default risk, but yields are not particularly attractive.   

President Arce is trying to kill two birds with one stone by announcing his plans to hold a referendum to establish concrete rules on presidential re-election and whether fuel subsidies should be continued.

The consultation could take place at the beginning of 2025, the same year as the presidential elections.

Arce announced the introduction of two new gasolines, more expensive and of better quality, which translates into a hidden cut on fuel subsidies.

As we expected, the government is implementing middle ground measures to muddle through the crises and trying to buy time before the presidential election.

In July, Pakistan reached a staff-level agreement with the IMF for a 37-month, USD 7 bn EFF.

External reserves covered 2 months of imports by the end of July, which is a significant improvement relative to the minimum of 0.8 months recorded in January 2023, but still below the recommended 3-month threshold.

International reserves fail to meet adequacy indicators such as imports, broad money, and short-term debt coverage, as well as the ARA metric ratio.

We expect loan repayments —the main driver behind FX reserve declines— to increase this year, which could lead Pakistan to deplete USD 1.4 bn of its FX reserves in FY 2024-25.

HOLD: With Z-spreads slightly below 900 bps are justified by a worrying external funding gap, despite the positive flow of official lending.

During the first semester, the government accumulated an overall fiscal deficit of 1.5% of GDP, higher than the 0.9% recorded in the same period of last year.

Despite the fiscal deterioration, the debt-to-GDP ratio remains on a downward trend. The ratio stood at 59.4% in June, down from 61.1% at the end of 2023.

In our view, it seems unlikely that the government will meet the 3.2% of GDP fiscal deficit target.

We adjusted our overall deficit forecasts for 2024 to -3.5% of GDP from -3.1%, with a primary balance of 1.7% of GDP.

SELL: Yields on Costa Rican bonds trade with a narrow spread and don't adequately compensate for the inherent credit risks of the country. 

The 4.5% growth recorded in H1-2024 marks the anticipated economic slowdown compared with the 7.9% reported for H1-2023.

Tourist arrivals growth has accelerated to 22.9% in Q2-2024 from 9.5% in Q2-2023. Nonetheless, we still expect tourism growth to slow down for the whole year.

 Considering the latest data, we see current account deficit narrowing to 4.1% of GDP in 2024 from the 8.6% deficit from last year and from our previously projected 5.9%

Ghana’s performance under the program has been positive but we see downside risks tied to the election cycle going forward.

Although all end-December targets were met (except for payables accumulation),  the end-March Indicative Targets results showed a worse performance as Ghana missed targets on the net accumulation of international reserves as well as on non-oil revenue.

For the next reviews, we expect Ghana to maintain its good performance despite some minor slippages and the introduction of several adjustors.

The EU approved the use of frozen Russian assets to fund Ukraine's reconstruction and an initial EUR 1.5 bn payment was disbursed through the European Peace Facility. 

There is a slight delay in finalizing the restructuring of Eurobonds and Ukraine suspended payments on foreign debt until October 1. 

Interest payments on GDP warrants were fulfilled despite the ongoing restructuring. 

A recent IMF statement indicates that there is progress on negotiations towards a program, a bullish signal but not necessarily indicative that a deal is imminent.

On the fiscal side, the statement notes a preliminary agreement for a 3.5% of GDP consolidation over 3 years, consistent with Bukele’s post-reelection “bitter medicine” warning/promise.

Importantly, the IMF admits that Bitcoin-related risks have not materialized, unsurprising given the on-the-ground reality that it has not been widely adopted as a currency.

HOLD: We see the risk/reward as tilted to the downside given prevailing spreads but will keep a close eye on developments to reevaluate if the risk/reward balance shifts.

In July, the IMF approved the third review of Egypt’s EFF program, unlocking a USD 820 mn disbursement.

The Fund commended progress in FX policy, inflation, and fiscal discipline while calling for further structural reforms to reduce the state’s footprint in the economy.

The currency is in a better place, as there are no signs of overvaluation and the country has managed to build up net FX reserves to their highest point in at least 10 years.

The finance minister said that the budget deficit came at USD 10.5 bn (around 4% of GDP) in FY 2024, a major improvement driven by stronger revenues and austerity measures.

We remain optimistic that Egypt will do what it must regarding privatizations and implementing a better environment for the private sector’s participation in the economy.

HOLD: While the current yields are still attractive, we believe that spreads are justified given the high debt/ GDP ratio and interest burden.  

Sajith Premadasa (SJB), AK Dissanayake (NPP), and President Ranil Wickremesinghe (independent) are poised to get the most votes in the forthcoming Presidential elections of September 21.

Premadasa’s support rose to 43% in June (+4 pp MoM), while AK Dissanayake’s dropped to 30% (-6 pp MoM), reflecting a shift in voter preferences and a technical tie.

President Wickremesinghe’s approval lags behind the other two but has been slowly rising to 20% amid an economic recovery.

We view Premadasa as the market-friendly alternative that guarantees the continuity of the IMF program, whereas Dissanayake may cause delays in fulfilling all the targets of the multilateral program.

We anticipate closely contested elections, with Premadasa and Dissanayake likely advancing to a runoff.

We maintain our HOLD recommendation for the name, as the bond prices are in line with our assessment of the recovery values implied for the baseline scenario.

Our EMFI Core Index gained 1.4% in July, with 17 names rising, 2 losing ground and 3 holding steady. 

UKRAIN (+11.0%), ECUA (+6.2%) and BAHAMA (+5.8%) were the month’s top performers, while SRILAN (-4.4%) and ARGENT (-3.3%) underperformed. 

Our Research Team monitored political developments in Venezuela, Ecuador and Bolivia, while keeping an eye on fiscal performance in Argentina, Turkey and Suriname. 

We also evaluated Ukraine and Ghana’s debt restructuring proposals, reviewed the asset class performance in the first half of the year and analyzed the impact on bonds of a potential removal of IMF surcharges. 

One notable effect of peak  Erdoganomics was the steady depletion of reserves to defend the lira.

With Minister Simsek at the helm, the country has been rebuilding gross reserves, which are nearly adequate on the IMF’s ARA metric but still insufficient to cover short-term debt

The orthodox policy has bred confidence and made Turkish assets attractive again, as non-resident holdings of GDDS and equity stock have increased over 1,000% and 51.5% in YoY terms, respectively.

We see a rushed switch to a more dovish monetary policy as the main risk to the rebuilding of FX reserves and the disinflation process.

BUY: We believe the 300-bp spread are attractive, given solid fundamentals, high current yields and potential for price appreciation under stable curve environments.

To supplement our analysis of carry trades, we identify opportunities in which rolling down upward-slopping curves can provide attractive price returns.

We identify opportunities in EGYPT, ANGOL, NGERIA, and TURKEY, with the last one being our favorite risk-reward proposition.

Under stable yield curves, our selected bonds would provide attractive price returns to supplement current income.

However, these names are still subject to idiosyncratic risks and potentially adverse global interest rate environments.

Last night, our base scenario of a stolen election materialized which sets the stage for disputes over the event’s legitimacy.

We’re skeptical of post-election negotiations and don’t see incentives for a break in the government coalition.

In our view, time is on Maduro’s side, as the opposition is very likely to lose momentum quickly.

Muted bond movement so far makes for a less attractive risk/reward proposition.

It has been slightly over a month since Ghana announced an agreement in principle with the private bondholders, which receive IMF approval.

The new debt profile is estimated to be in line with the DSA sustainability thresholds for a medium debt carrying capacity country.

Prices are implying exit yields in the 11-12% range, which leaves some room for upsides. We modify our recommendation to BUY from HOLD.

Ecuador's cumulative fiscal deficit reached USD 1,193 mn (-1.0% of GDP) until May, with a primary surplus of USD 335 mn (0.3% of GDP), reflecting Noboa’s efforts at fiscal consolidation.

The improvement in the overall fiscal deficit was led by a 3.3% YoY decline in overall expenditures and a 10.4% YoY increase in total revenues, which were driven by higher tax collection.

The Noboa administration has outperformed the median result for previous years, which poses upside risks to our 2024 fiscal forecasts.

Maintaining the primary surplus will be challenging due to the closure of the Yasuní block in August and significant seasonality effects in the second half of the year.

The Salvadoran economy continues growing above its potential, recording an expansion of 2.2% YoY in 1Q24, driven by higher travel inflows and more robust domestic demand supported by higher remittances.

Considering the economic performance of the first half of the year, we adjusted our GDP growth forecast for El Salvador to 2.9% from 1.9%.

Our forecast implies that the Salvadoran economy will continue growing above its potential of 2% but below last year when it recorded a 3.5% growth.

Our projection is more pessimistic than the 3.5%-4% growth range forecasted by the Central Bank of El Salvador, given there are signs of an economic deceleration during 1H24.

HOLD: The “Trump trade” boosted the bonds over the month, as they gained 3.2 pts on average on a perception of a higher likelihood of an IMF agreement.

The outcome of the US presidential election in November 2024 could significantly impact the level of US support for Ukraine and the war's developments.

While Ukraine received a USD 61 bn aid package from the US in April 2024, its ability to defend itself depends on continued Western military and financial assistance.

Ukraine's position suggests it might be able to sustain the war through 2025, but not longer.

If former President Trump wins the election, we expect a reduction in future US aid to Ukraine, potentially leading to a ceasefire agreement in 2025 with Russia retaining the occupied territory.

BUY: Our valuation of the restructuring proposal is 3.6 pts above current prices, providing potential upside for the bonds. 

The IMF is evaluating its surcharge fees due to higher borrowing costs. 

Surcharges apply to countries heavily reliant on IMF loans exceeding 187.5% of their quota. 

21 countries currently pay surcharges, with two more nearing the threshold due to high borrowing needs. 

Argentina will owe the most in surcharges (USD 3.2 billion) over the next four years. 

Argentina, Ecuador, Egypt, and Ukraine would be the names most benefited from this measure.  

On July 22, the government announced a debt restructuring agreement in principle with the ad-hoc bondholder committee, which holds around 25% of the outstanding. 

On aggregate, the operation will carry a 37% nominal haircut and the new bonds will have step-up coupon schedules and contingent-value characteristics. 

We value the restructuring offer at 37.3c on aggregate (38.8c with the consent fee) at a 14% exit yield, which is better than our baseline expectation of NPV recoveries in the 31-34c range. 

Our decision to move the name to BUY in our last report paid off, as bond prices gained 5 pts to trade at an average of 34.9c following the announcement. 

Credible polling results for the July 28 presidential elections give a strong lead to the opposition candidate, Edmundo González.

However, we see unchanged disincentives for a political transition given the potential prosecution of members of the ruling coalition and the loss of access to corruption opportunities.

In our view, these disincentives extend to the military and other security forces, and we don’t expect a break in the ruling coalition.

We expect Maduro to remain in power through fraudulent means and employ whatever level of violence necessary to suppress opposition protests in the aftermath.

HOLD: Our baseline scenario remains one of no restructuring, as the Maduro government lacks incentives to restructure, even assuming the US was to recognize him and lift financial sanctions.

The Supreme Electoral Court submitted a bill to the National Assembly that would suspend primaries for the 2025 presidential elections.

If approved, it would allow each party’s board of directors to choose its candidate without an internal vote.

This would be positive for President Luis Arce, since his supporters are registered as the legal representatives of the MAS party before the electoral authority.

We expect the bill to be approved with votes from both the pro-Arce MAS faction and the opposition.

The Milei administration announced its 6th consecutive monthly fiscal surplus, corresponding to June.

The cumulative fiscal surplus has reached 0.5% of our estimated GDP, while the primary surplus stands at 1.4%.

Expenditures fell 35% YoY in real terms, while revenues fell just 15% YoY.

We note caution that the government’s switch from coupon-bearing to capitalizable bills for its domestic financing constitutes a form of “window dressing”.

Given the Milei administration’s outperformance relative to our priors, we adjust our baseline scenario and believe an overall fiscal balance in 2024 is viable.

The IMF program remains on track despite the drought, which will have an impact on the government’s fiscal performance.

The authorities are requesting modifications to program targets for upcoming reviews to account for the resumption of debt service payments and the impact of the drought.

We adjust our primary balance forecast from a 1.4% to a 0.3% surplus and our overall deficit forecast from 4.8% to 5.9% of GDP for 2024.

Our estimates are more optimistic than those of the IMF due to better-than-projected fiscal revenues and lower expenditures in the first four months of the year.

HOLD: After the huge relief achieved at the exchange, Zambia is trading more like a “B-” rating rather than a “CCC” name.

The war of words between Israel and Hezbollah continues heating up, although the nature of attacks remains relatively the same.

Our scenario of a full-scale conflict has evolved from unlikely to possible. Given both sides have a lot to lose, we remain slightly tilted to believe that it will not happen.

Nobody doubts Israel’s military strength, but Hezbollah is also not a weak adversary and is far more prepared than in 2006.

While the militia’s arsenal is unknown, what they have shown until now is more sophisticated than originally expected.

August and September will be the crucial months to define the course of the conflict and whether it will evolve into a full-scale war.

Daniel Noboa is leading the presidential race, with 32.6% voter intention, but he faces significant challenges over security and economic issues.

Kidnappings and extortion have increased sharply in 2024, putting into question the government’s assertion that the situation has improved.

A VAT hike, power outages, and economic slowdown have negatively affected private consumption, contributing to Noboa's falling approval ratings.

We think that Noboa has a high probability of reelection in a likely runoff, provided that he can address key public concerns and reach governance agreements.

BUY: Bonds bounced back close to their April levels as the market continues to weigh Noboa’s chances of reelection.

Almost four years have passed since President Chan Santokhi took office on July 13, 2020, and after a bumpy start, his macroeconomics reforms are finally bearing fruits.

Since September of last year, the local currency has been strengthening, accumulating an appreciation of 24.2% YoY in July.

Fiscal improvements and a stronger exchange rate have eased inflation, which slowed to 18.6% in May, its lowest level since March 2020.

However, the government is struggling to increase revenue collection and cut spending amid a severe drought, and we believe the IMF program's primary surplus target for this year is unlikely to be met.

High-yield sovereigns are having a strong performance so far this year, as our EMFI Core Index has gained 12.3% and Bloomberg’s EM HY USD bond index 6.2%.

Credit spread compressed from 623 bps to 536 bps as higher-risk credits outperformed their safer counterparts.

The spread on “Caa” names fell from 1,800 bps to 1,200 bps, while “B” credits fell from 475 bps to 408 bps and “Ba” credits from 273 bps to 250 bps.

Total returns were driven by price variations that result from spread compression; carry played a secondary role and has become less attractive due to the repricing of highly attractive names.

Overall, Guatemala presents commendable external figures as it stands out in the region for its high current account surplus, growing reserves, and stable currency.

After shrinking in prior years, the current account surplus climbed to 3.2% of GDP in 2023, from 1.3% in 2022.

The 2023 result was driven by stronger growth in remittances, a trend that has continued throughout 2024.

We upgraded our forecast for the current account from a surplus of 2.1% of the GDP to 2.9%.

HOLD: Positive-to-neutral liquidity and solvency indicators are attractive, and we don’t see near-term credit risk. 

Official preliminary estimates put GDP growth at 2.4% for FY 2023-24, below the target of 3.5% but slightly above our expectations of 2.0%.

The current account deficit narrowed to USD 464 mn (0.14% of GDP) in the first 11 months of FY 2023-24 (vs. 0.81% in the same period of last year), driven by higher exports and government restriction imports.

The Pakistani rupee has stabilized at PKR/USD 277-279 since January, but international reserves remain below the level recommended by the IMF, and rising imports will exert pressure on the exchange rate.

We adjusted downwards our exchange rate forecast for FY 2024-25 to USD/PKR 330.1, from our previous projection of 294.2.

HOLD: We think the bonds appropriately price little default probabilities but a small likelihood of further spread tightening.

Jamaica grew 1.4% in Q1 2024, a deceleration compared to the 4.2% registered in Q1 2023.

The Ministry of Tourism announced that the country has received around 2 mn visitors from January to May 2024, posting a new all-time high for the first five months of the year. 

The current account registered a surplus of 3.0% of GDP, better than the 1.6% we expected. Therefore, we adjusted upwards our forecasts for 2024 and 2025 to 1.0% and 0.3%, respectively.  

Our EMFI Core Index lost 0.4% in June, with 11 names rising, 7 losing ground and 4 holding steady. 

UKRAIN (+6.2%) and ELSALV (+2.1%) were the month’s top performers, while ECUA (-3.4%) and ARGENT (-3.3%) underperformed. 

Our Macro Team kept track of political developments in Bolivia, fiscal adjustment in Argentina, and the development of IMF programs in several of our countries. 

Our Strategy Team analyzed restructuring proposals in the Ukrainian negotiation, reviewed carry trade opportunities in the EM hard currency sovereign space, and reassessed fair values for Argentinian Eurobonds. 

The economy only grew 0.9% in 2023 (slightly above our projection of 0.6%) mainly driven by a 2.4% decrease in the oil sector.

Lourenço’s government has been introducing a range of fiscal measures to encourage investment in the industry, which it is starting to pay off.

So far this year, the average output stands at 1.11 mbd, which represents an increase of 5.8% compared to the 2023 average.

Despite great optimism in the oil industry, we do not expect there will be a large increase in oil production in 2024. The government is aiming to reverse the current natural decline and maintain stable  production.

HOLD: Despite the efforts to smooth the external debt obligations from the escrow accounts, these remain challenging. The outstanding fiscal performance is key to continue servicing the debt.

On Wednesday, the court of appeals remanded the PDVSA 20 case to the district court and vacated the previous judgment.

We recalculate the bond’s claim at USD 2.6 bn (153c), from the previously awarded USD 1.9 bn (114c).

Judge Stark delayed the hearing for the sale of PDV Holding (PDVH) to September 19, but a winning bid will be announced by July 3.1

The presumption remains that the Special Master will negotiate a settlement with the bondholders to facilitate the sale of the unencumbered asset.

BUY: PDVSA 20 is still trading at 78-79c despite the 53 pts in imbued PDI, which leaves ample room for gains even if bondholders accept a reduction on their legal claim.

Back in 2022, Egypt was aiming to position itself as a regional gas hub and take center stage as an energy supplier to Europe in the aftermath of the Ukraine war.

Now, the country is experiencing a gas output decline and a rise in energy consumption, which have forced it to import LNG and halt LNG exports.

With higher temperatures and higher demand, the government has been forced to impose nationwide power rationing during the Summer since last year.

While the government can sustain energy imports for the time being, the dynamics of domestic energy demand and declining production are unfavorable and leave the country vulnerable to external shocks.

HOLD: While the current yield is still attractive, we believe that Z-spreads around 700 bps for the 10-year tenor are justified given the high debt relative to GDP and high interest burden.

Sri Lanka has met all quantitative performance targets on the EFF IMF program as the economy grew by 5.3% in Q1-2024.

Recent policy changes like raising the VAT rate from 15% to 18% boosted tax revenues by 45% in Q1-2024, which is in line with our expectations of a tax revenue recovery of 3 pp of GDP this year.

We anticipate the overall budget deficit to decrease from 8.3% in 2023 to 6.1% in 2024, exceeding IMF program goals.

Upcoming elections pose a risk of policy reversal, and long-term fiscal sustainability depends on the permanency of structural reforms.

HOLD: A deal with private creditors appears very close, but we remain unsure of the reception that the macro-linked component will find once issued.

A strong performance for EM Eurobonds in 1H24 has cleared several of the most attractive current yield opportunities identified in our last report, making carry less attractive.

On average, current yields have held steady but the riskiest end is less attractive, leaving only 3 names above 10% (MOZAM, ELSALV, and BOLIVI), down from 5 in our last update.

We have HOLD recommendations for ELSALV and BOLIVI, as we think the coupons are interesting but think there is latent downside risk due to macro and political fundamentals.

We continue to regard current yields as a source of downside-hedging and upside-enhancement for high-risk credits, but see fewer clear bets than at the end of last year.

Nigeria faces a deteriorating security environment that poses downside risks to the country’s macroeconomic outlook.

President Tinubu has pledged to make security a top priority but results after 7 months in office have been mixed.

Total deaths across the country's six geopolitical zones decreased 18.9% compared to 2022.

The biggest challenge is to increase funding allocations for security while containing fiscal expenditures.

We value a bondholder proposal to restructure ETHOPI 24 by extending the maturity and implementing an amortization schedule at an 81.5% recovery value for a 14% exit yield.

The government’s counterproposal includes moderate coupon cuts and a longer extension of the principal repayment schedule, which we assess to imply a 69.4% recovery value.

We see upside potential for both baselines if the exit yield is lower or if the government includes the repayment of missed coupons in the restructuring.

With ETHOPI 24 trading at 67.9c, the proposals have more upside than downside but there is a latent risk that the restructuring is delayed or bilateral creditors seek to impose worse terms in the future due to “comparability of treatment” concerns.

Twelve times has the National Assembly tried and failed to elect a new president to fill the vacancy that started in October 2022.

To elect a president, 86 votes are required in parliament in the first round, with the number dropping to 65 votes in the second round. However, the main challenge is keeping the quorum with 86 MPs.

The legislative arithmetic is on paper favorable to the caretaker government, which is supposedly backed by the March 8^th alliance, but petty infighting has made it very hard to form parliamentary majorities.

An agreement with the opposition or independents to move past the deadlock is not likely in the short term.

Hezbollah has left the session all twelve times. We expect their lack of willingness to solve the political gridlock to continue at least in the short term, particularly as long as it is focused on Israel.

The Paris Club agreed to postpone debt service payments until 2027 when the IMF program is expected to conclude. 

The IMF has emphasized that a restructuring process is needed to ensure debt sustainability in the medium to long term. 

The IMF also published its latest Article IV on Ukraine and approved the second review of the EFF program, unlocking USD 900 mn in disbursements. 

We expect a market-friendly proposal for the restructuring, with negotiations starting in the first quarter of 2024. 

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.