International Research Articles
Aruba Update - April 2019
Further sanctions imposed by the Trump administration on Venezuela will stall the planned completion of the refurbishing of the Citgo leased oil refinery in Aruba. The medium term growth outlook for the sovereign was heavily predicated on the completion of the refinery. With the project in limbo, real GDP growth over the medium term is scaled back by at least one percentage point, and will put pressure on the fiscal accounts.
Cayman Island Update - March 2019
The Cayman Island’s macroeconomic outlook remains relatively positive, but there are headwinds that could negatively affect growth and undermine future economic development. Real GDP is expected to expand by 2% per annum over the medium term driven by activities in tourism and to a lesser extent financial services. Strong job market conditions in the US buoyed by positive economic fundamentals will provide a tailwind for tourist arrivals over the forecast horizon. However, the financial sector contribution to real growth is expected to remain subdued and could potentially become a drag in the future owing to the evolution in financial and taxation laws in developed countries....Read more
Venezuela Update - March 2019
Since our last look at Venezuela in November-2018, the situation has deteriorated further. The opposition leader, Juan Guaidò, declared himself interim president on the 23rd of January-2019. Guaidò, the 35 year old leader of Venezuela’s National Assembly, took the “oath of office” and promised to serve as interim leader and call for general elections. His declaration has been supported by the US, the OAS (Organization of American States) and the majority of Latin American countries. The declaration has been met with expected resistance by the incumbent, President Nicholas Maduro who has ordered US diplomats to leave the country....Read more
Panama Update - February 2019
In 2017 the Panamanian economy was hit by the negative sentiments associated with the “Panama Papers” and the “Waked Money Laundering” scandals. The scandals negatively affected the sovereign’s ease of doing business as well as the country’s attractiveness as an investment destination. Since the scandals however investors may be wondering how Panama has been doing and whether they have shaken off the adverse effects.
The simple response is yes! Even before the money laundering scandals broke, Panama had taken steps to diversify its economic base in an attempt to smooth the impact of possible shocks. Traditionally economic growth is Panama was driven by the Panama Canal and associated investments in banking and logistics. Since then, the sovereign has diversified into mining, real estate, transportation, tourism, and construction in addition to the mainstays of the economy....Read more
Guyana Quarterly Update - Political Concerns and Territorial Dispute - January 2019
The defection of a member of the ruling coalition in Guyana caused a no confidence vote against the government. This has resulted in short-term political instability that has ramifications for the future of Guyana and its nascent oil resources. There is a morbid fear that the vote could trigger ethnic violence if the incumbent ruling party were to be voted out of office. Venezuela has seized on the sovereign’s political challenges and is using the opportunity to step-up harassment of vessels operating in Guyana’s exclusive economic zone in a bid to extort resources from Guyana over territorial claims that were settled in the last century. The emergence of a political champion would go a far way to assuage fears of state resources being used inappropriately and to bridge the fractious divide between the two main ethnic groups in Guyana...Read more
Puerto Rico Update - January 2019
Following our June 4, 2018 update (“GDB Offers Restructuring Terms”), additional information was made available by the government of Puerto Rico. On August 9th, the Puerto Rico Fiscal Agency and Financial Advisory (“AAFAF”-Spanish Acronym) and the Government Development Bank (GDB) announced that they would be soliciting votes from creditors / bondholders seeking approval for the terms of the new bond offered under Title VI of the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”)....Read more
Venezuela Update - November 2018
Venezuela (the sovereign & PDVSA) has accumulated arrears of approximately US$7.0 billion since it defaulted on its debt obligations in November, 2017. The country has outstanding debt of approximately US$67 billion going out to 2038 with US$23.7 billion set to mature over the next five years. The amount owed is in addition to debt outstanding due to various international court rulings because of Venezuela’s nationalization of private assets and industries in the past. Currently the only optimistic scenario that we see, which could provide a silver lining for investors, is the possibility of aid from China and/or Russia....Read more
Bahamas Update - November 2018
The domestic economy is slowly improving driven by growth in tourism and related construction activities. For the period 2018 – 2019, real output is expected to expand above 2% but thereafter is expected to level off at around 1.6%. In mid-2017, the controversial Baha-Mar hotel started accepting guests. This has contributed to our improved growth outlook in the tourism industry and the broader economy.
The fiscal deficit is expected to contract over the medium-term driven by higher revenue flows and lower government spending. Revenue intake has increased significantly since the implementation of the value-added tax (VAT) in 2015 resulting in revenue to GDP rising from 15.1% of GDP in 2015 to 18.7% in 2018. The new political administration has an overwhelming majority in parliament and has commenced the process of implementing measures to curtail the fiscal deficit and reduce the debt and has signalled its intention to minimise capital controls. Our baseline forecast is indicating stabilisation in some of the sovereign’s leading macroeconomic indicators.....Read more
Aruba Update - November 2018
Aruba is in a precarious economic position. On the one hand fiscal consolidation has led to reduction in the fiscal deficit while on the other hand the debt overhang severely constrains government spending. We are forecasting growth of 2% per annum over the medium term, but the outlook hinges on the re-opening of the petroleum refinery in 2019. Citgo, the majority owner in the partnership, is facing financial challenges arising from issues with its parent company. Delays in the start time of the refinery will negatively affect GDP growth and government revenues. With the sovereign finances already constrained by austerity measures, the government will find it exceeding difficult to generate additional revenues and/or cut expenditure further to meet the fiscal targets. Under the scenario of lower than envisaged growth, debt servicing will become increasingly challenging. Economic problems facing Venezuela have spilled over into Aruba via lower tourism and domestic exports. The external accounts are vulnerable, as the economy is not sufficiently diversified to weather external shocks and reserves are relatively low. Given our outlook on Aruba’s macro-fiscal profile and political environment as well as the risks facing the country, we are changing our recommendation on the sovereign bonds to UNDERWEIGHT....Read more
Venezuela Update - November 2018
Aid from China & Russia
Venezuela (the sovereign & PDVSA) has accumulated arrears of approximately US$7.0 billion since it defaulted on its debt obligations in November-2017. The country has outstanding debt of approximately US$67 billion going out to 2038 with US$23.7 billion set to mature over the next five years (Figure 1). The amount owed is in addition to debt outstanding due to various international court rulings because of Venezuela’s nationalization of private assets and industries in the past. Currently the only optimistic scenario that we see, which could provide a silver lining for investors, is the possibility of aid from China and/or Russia....Read more
Aruba Update - October 2018
Aruba is in a precarious economic position. On the one hand fiscal consolidation has led to reduction in the fiscal deficit while on the other hand the debt overhang has severely constrained government spending. We are forecasting growth of 2% per annum over the medium term, but the outlook hinges on the re-opening of the petroleum refinery in 2019. Citgo, the majority owner in the partnership, is facing financial challenges arising from issues with its parent company. Delay in the start time of the refinery will negatively affect GDP growth and government revenues. With the sovereign finances already constrained by austerity measures, the government will find it exceedingly difficult to generate additional revenues and/or cut expenditure further to meet the fiscal targets. Under the scenario of lower than envisaged growth, debt servicing will become increasingly challenging. Economic challenges facing Venezuela have spilled over into Aruba resulting in lower tourism and domestic exports. The external accounts are vulnerable, as the economy is not sufficiently diversified to weather external shocks and reserves are relatively low. Given our outlook on Aruba’s macro-fiscal profile and political environment as well as the risks facing the country, we are revising our recommendation on the sovereign bonds to UNDERWEIGHT....Read more
Barbados Update - October 2018
The International Monetary Fund (IMF) announced on September 7 that it had reached a staff level agreement with the government of Barbados. The IMF team, led by Bert Van Selm, noted that a staff level agreement was reached on a 48-month Extended Fund Facility (EFF) to provide financial support of approximately US$290 million. If approved by the IMF, an amount of approximately US$49 million would be made available immediately.
The Bajan Government has put forward an Economic Recovery and Transformation Plan (ERTP). The ERTP aims to restore macroeconomic stability and put the economy on a path of strong, sustainable and inclusive growth, while safeguarding the resilience of the financial sector. The cornerstone of the program is a strong front-loaded fiscal adjustment focused on curbing current expenditure, while maintaining space for bolstering social safety nets and infrastructure spending...Read more
Puerto Rico Update - June 2018
Following our June 4-2018 update (“GDB Offers Restructuring Terms”), additional information has been made available to creditors by the government of Puerto Rico. On August 9th, the Puerto Rico Fiscal Agency and Financial Advisory (“AAFAF”-Spanish Acronym) and the Government Development Bank (GDB) announced that it would begin the solicitation of votes from creditors / bondholders seeking approval for the terms of the new bond offered under Title VI of the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”).
UPDATED DETAILS OF THE NEW BONDS ON OFFER
The new bonds on offer to clients are worth 55% of the value of the old bonds. The new bonds will bear a
fixed interest rate of 7.5% per annum, they are payable semi-annually on February-20 and August-20 each year
and the final payment/maturity date is August-20-2040...Read more
Cayman Update - August 2018
Despite the challenges facing the financial sector in the Cayman Islands, the economy is expected to expand on average by 2% per year over the medium-term driven by growth primarily in the tourism sector. Continued strong growth in the US will contribute to low levels of unemployment and help buoy improvements in household income. This will provide a conducive environment for growth in the leisure sector across the Caribbean from which the Cayman Islands stand to benefit.
Tourism accounts for 30% of GDP and around 14% of overall employment. Over 5 million persons visited the Cayman Islands during the period January to September 2017, including 312,000 stopover visitors of which....Read more
Barbados Update - July 2018
On July 24 Moody’s Investor service provided its latest credit opinion on Barbados. The rating agency noted that Barbados’ inability to arrest its significant debt burden (estimated to be in excess of 174% of GDP) effectively led to its default in June. The doubling of the debt over a decade meant that the shock to the economy was too much to bear.
On the positive side, the new government has moved quickly to consolidate its public finances, seek external multilateral dialogue (IMF) and begin to renegotiate its debt burden. The problems however will not be easy to solve as a high interest burden (26% of govt’ revenues), negative usable reserves and the complexities of an exchange rate peg leave very little room to maneuver....Read more
Puerto Rico Update - June 2018
On May, 11th the Financial Oversight and Management Board for Puerto Rico (the Oversight Board created by Congress) authorized the Fiscal Agency and Financial Advisory Authority (“AAFAF”-the Spanish acronym) to proceed with the restructuring of the debt of the Government Development Bank (GDB) of Puerto Rico. The proposed restructuring is a voluntary agreement. Epiq Bankruptcy Solutions, LLC (Epiq) has been appointed as Calculation and Information Agent for the proposed deal. GDB Financial creditors have the opportunity to exchange their claims for one tranche of new bonds at an upfront exchange ratio of 55%....Read more
Barbados Update - June 2018
The new Prime Minister of Barbados, Mia Mottley, announced on Friday, June 1, that her government would be suspending payments on debt owed to foreign creditors. On the domestic side, the government noted that it would endeavor to make scheduled interest payments, however domestic creditors would be asked to roll over principal maturities until a full restructuring agreement is reached.
The government is seeking the cooperation of both internal and external creditors as they work through the restructuring process. The International Monetary Fund (IMF) has been asked to aid in the process with Christine Lagarde, IMF Managing Director, announcing that the IMF would be sending a team to Bridgetown to start discussions with the government on how the IMF can support the authorities’ economic plan. The PM noted that the IMF team would arrive by Tuesday given the urgency of the country’s challenges...Read more
Belize Update - April 2018
This is a follow up to our recommendation on Belize in mid-2017 where we have a sell recommendation on the sovereign’s bond. Based on our assessment of Belize’s macro-fiscal framework, improvements are expected over the medium-term, in particular a reduction in the fiscal deficit and positive real growth. Notwithstanding this downside risks are elevated, as shocks could reverse much of the gains that have been made in the recent past. This is compounded by the narrow economic base, high debt overhang, and low fiscal and external buffers. Any event which causes a negative shift in the flow of fiscal resources could see the government prioritising other spending at the expense of debt servicing. This has been amply demonstrated in the past by the actions of the fiscal authorities having engaged in three debt restructurings within the last decade, which weighs heavily on our assessment of the sovereign’s risk....Read more
Venezuela Update - March 2018
Venezuela is facing a difficult economic situation. GDP growth has been contracting; inflation has been very high, net international reserves have declined to historic lows, the fiscal deficit has been widening and crude oil, the major export earner for the country, has experienced a consistent decline in production and output over the last decade or more. These factors have combined to weaken Venezuela’s ability to pay its debt obligations on time and in full...Read more
Grenada Update - March 2018
Erratic real economic growth rates leading up to 2014 caused the government to pursue expansionary fiscal policy, which was largely unsuccessful because of the low impact of government spending on growth. To help clear arrears and pay down the high cost debt the government issued a global bond in 2012 amounting to 25% of GDP. Two back-to-back hurricanes in 2004 and 2005 severely affected the country causing millions of dollars in damages to infrastructure and the public housing stock and destroyed the entire nutmeg crop. Saddled with a high debt burden and limited fiscal space, the sovereign experienced...Read more
Venezuela Update - November 2017
Venezuelan President Maduro has announced on state television that after the payment of the maturing 2017’s on November 2nd, the country will enter into negotiations with creditors to restructure its outstanding debts. Sanctions imposed by the US have been blamed for the restructuring with the President noting that it has become increasingly difficult to negotiate the treacherous debt waters given the new paradigm. Recall that on August 24, 2017, US President Donald Trump issued an executive order banning US trade in new bonds issued by the government of Venezuela including its state-run oil company, PDVSA...Read more
Barbados - November 2017
High debt (109% of GDP), persistent fiscal deficits above 5% of GDP since 2012, net negative international reserves and a climbing interest burden have placed pressure on the fixed exchange rate-peg leading to the latest local currency rating downgrade (September 27, 2017 by S&P). The government has also continued to face difficulties turning around fiscal policy given scheduled parliamentary elections in 2018.....Read more
Cayman Islands - September 2017
The Cayman Islands have a solid governance framework and low tax rate which contributes to the attractiveness of the sovereign as an offshore financial centre. However, the sector has come under intense scrutiny by G-20 countries and its share of GDP has contracted in recent years. However, real economic growth averages around 2% per annum over the last four years and is expected to maintain the same momentum into the medium-term due to increased activities in the tourism sector. Output in the sector is being buoyed by modest economic growth and positive job market conditions in the US which are driving tourism demand in the Cayman Islands...Read more
Bahamas - September 2017
The sovereign is facing headwinds in the off-shore financial sector due to legislative changes in G-20 countries to clamp down on tax evasion.
The competitiveness of the Bahamas as an off shore jurisdiction is waning and therefore the government is relying on the tourism sector as
the main conduit to fuel real sector growth. The high dependency of the economy on one sector makes it extremely vulnerable to external
Aruba - September 2017
Like a number of other Caribbean territories, Aruba’s economy is dependent on tourism which accounts for well over 50% of gross domestic product (GDP). Of the over 1.5 million visitors which visited the island in 2016, a little over 60% were from the United Stated (US). In 2014 tourist arrivals from Venezuela accounted for over 20% of total visitor arrivals, but have since fallen to below 10%. The narrow economic base and dependence on the US and Venezuela to a lesser extent makes the sovereign very vulnerable to shocks in both economies. At this moment, the balance of risk is tilted towards the upside in respect to the tourism industry over the medium-term. On the one hand, robust economic growth, positive labour market developments and growing household income in the US have led to continued strong demand for leisure activities. Consequently, year-on-year growth in tourism of at least 3% from that market is expected over the forecast horizon. While overall growth is expected, on the other hand, it is likely to be tempered by decreased visitors’ arrival from Venezuela resulting from the economic challenges that the sovereign has been grappling with over the last 3 years with no end in sight....Read more
Venezuela Update - September 2017
On August 24, 2017, US President Donald Trump issued an executive order banning US trade in new bonds issued by the government of Venezuela, including its state-run oil company, PDVSA. The move is expected to place additional pressure on Venezuela’s cash strapped government by restricting access to vital US capital markets. Effectively Venezuela is being prevented from issuing new bonds.…Read more
Puerto Rico Update - August 18 2017
On May 30-2017, the US District Court for the District of Puerto Rico ordered that all future payments of principal and interest on debt be suspended. The Court ordered that all outstanding payments be held, where funds are available, in their existing accounts until a final order is made by the Court directing the time and manner (principal, interest and nature of likely haircuts) of final post default payments. It is yet to be determined whether these post default payments will be in the form of principal, interest, and or possible haircuts.… Read more
Costa Rica “Congress’ Inability to Reach Consensus Hurting Credit Quality” – May 2017
The beginning of 2017 saw Costa Rica experience two one notch downgrades from two of the top three international rating agencies. One downgrade came from FITCH, from “BB+/negative” to “BB/Stable” and the other from Moody’s, from “Ba1” to “Ba2” with the negative outlook maintained. Standard & Poor’s (S&P) has not adjusted its rating or outlook on Costa Rica so far in 2017… Read more
Barbados Update – April 2017
This piece will attempt to provide a synopsis of the challenges as well as provide an update on any recent information thatmay be of interest to investors…Read more
Venezuela Update – April 2017
We maintain our sell recommendation on Venezuela, as we believe that the underlying fundamentals have not shown significant improvement. The sovereign’s ability to service its debt remains under severe strain because of continued hyper-inflation, economic contraction and ongoing political tensions…Read more
Honduras’ Update – March 2017
Honduras’ economy expanded by 3.6% in 2016, which was in line with the growth registered in the previous year. Economic growth was influenced by private consumption due to rising remittances from the United States (U.S.) and low oil import bills. The economy also benefited from measures implemented in accordance with the IMF program, such as tax administration reforms and expenditure limits. These adjustments were in a bid to improve economic performance and enhance its public finances. The growth performance was supported by increased public infrastructure investment and an accommodative monetary policy stance (see Figure1). The outturn in 2017 is expected to remain on this trend following continued recovery in U.S…Read more
Guyana Research Update – March 2017
Synopsis of the Sovereign
- Large untapped quantity of mineral oil deposits, which has the potential to attract increased foreign investments, accelerate economic growth and advance infrastructure development.
- Strong ties with the multilaterals that provide financial and technical assistance to help engender the structural adjustments required to diversify the economy and drive higher levels of economic growth, as well as macroeconomic and fiscal sustainability.
- Narrow economic base that is highly dependent on primary production – mining and agriculture.
- Frontier economy with a small population and limited access to modern technology.
- Growing and sustained tension between the two main ethnic groups that has spilled over into the political arena resulting in polarization between the two main political parties demarcated along ethnic lines…Read more
Puerto Rico Elects New Governor – February 2017
PUERTO RICO ELECTS NEW GOVERNOR
GOVERNOR COMMITS TO SUPPORTING THE PROCESS
The people of Puerto Rico have elected a new governor. His name is Ricardo Rossello; he graduated from Massachusetts Institue of Technology (MIT), with a first degree in biomedical engineering and economics, he also completed a Ph.D in biomedical engineering at the University of Michigan. He is a former college professor and son of former governor of Puerto Rico, Pedro Rossello. He was sworn in on the January 2, 2017. The new governor pledged, during his election campaign, to work with bondholders, to abide by the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) and to support the members of the Financial Control Board (FCB) to restore Puerto Rico’s battered financial credibility…Read more