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Aruba

 

Aruba Update - April 2019

Summary
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.
Aruba...Read more 

 

Aruba Update - November 2018

Summary

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 

 

Aruba Update - October 2018

Summary

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 

 

Aruba - September 2017

Summary

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 

 

 

 

Bahamas

 

Bahamas Update - September 2019

Summary

On September 1-3, 2019, Hurricane Dorian ripped through the northern sections of the Bahamas.  The tropical cyclone touched down as a category 5 hurricane ravaging parts of the archipelago.  The two main islands that are affected are the Grand Bahama and Abaco with an estimated population of 59,000 and 20,000 respectively or 20% of the combined population of the Bahamas.  

The International Red Cross estimated that 45% of homes or about 13,000 buildings were totally destroyed or severely damaged in the Grand Bahama and Abaco.  Civil and other infrastructure were also severely damaged and the islands are without electricity, water and proper sanitation.So far over 40 persons are presumed...Read more 

 

 

Bahamas Update - November 2018

Summary

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 

 

 

Bahamas - September 2017

Summary

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

shocks...Read more 

 

 

Barbados

 

Barbados Update - November 2019

Summary

In a joint press release on October-18th, the government of Barbados and the Barbados External Creditor Committee announced that both parties had reached an agreement in principle on the treatment of Barbados’ outstanding US-dollar denominated external debt. The agreement would allow Barbados to exchange certain outstanding US-dollar debt for new bonds to be issued by the sovereign/Barbados. The bonds to be exchanged include Barbados’ 7.8% Fixed Rate Bonds due 2019, the 7.25% Notes due 2021, the 7.00% coupon bonds due 2022, the 6.625% long dated 2035 bonds, and a Floating Rate Loan with final maturity in 2019....Read more

 

Barbados Update - October 2018

Summary

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 

 

Barbados Update - July 2018

Summary

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 

 

 

Barbados Update - June 2018

Summary

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 

 

Barbados - November 2017

Summary

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 

 

Barbados Update – April 2017

Summary

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 

 

 

 

Belize

 

Belize Update - April 2018

Summary

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 

 

 

Cayman

 

Cayman Island Update - March 2019

Summary
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 

 

Cayman Update - August 2018

Summary

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...Read more 

 

 

Cayman Islands - September 2017

Summary

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 

 

Costa Rica

 

Costa Rica Update - March 2019

Summary

On December 21, 2018, Standard & Poor’s downgraded Costa Rica from “BB-” to “B+” on concerns of a persistently high fiscal deficit, poor debt management, an increasing share of debt denominated in hard currency and a consistently high level of dollarization in the financial sector. The rating agency’s ongoing concern is further underlined by the maintenance of its negative outlook which indicates a 33% chance of another downgrade in the next 6 to 24 months. Costa Rica has long been warned by the rating agencies of their concern regarding long term fiscal stability....Read more

 

Costa Rica “Congress’ Inability to Reach Consensus Hurting Credit Quality” – May 2017

Summary

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 

Cuba
 

Cuba Update - January 2020

Summary
Following the Spanish arrival in Cuba in 1492 and subsequent development of the island as a colony, the indigenous Indian population was decimated resulting in Spaniards importing African slaves to work on sugar and coffee plantations. Cuba became the launching spot for the annual treasure fleet bound to Spain from Mexico and Peru. The Spaniards dominated all aspects of Cuban lifestyle and oppressed the local population. This led to many slave rebellions, which were put down by the military force. With the help of the United States (US) during the Spanish-American war of 1898 the Spaniards were defeated. Under the terms of the Treaty of Paris that same year Spain relinquished its claim on Cuba and the US became a protectorate for the territory until 1902 when Cuba officially declared its independence from Spain. For the next 60 years US business and financial interests dominated the domestic economy. A succession of corrupt puppet-political administrations, military dictators, backed by the US government, ruled over Cuba during that period. This incited a nationalist movement for change, and in 1959 a rebel force led by Fidel Castro overthrew the government of Fulgencio Batista. The victory of the rebels and their actions thereafter set the stage for Cuba’s social, political and economic relationship with the US and rest of the world for the remainder of the 20th century...Read more 

Grenada

 

Grenada Update - March 2018

Summary

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 

Guyana

 

Guyana Update - January 2020

Summary
Oil production in the Stabroek bloc is expected to commence in Q1:2020 with the first shipment programmed in February, but may very well come on stream in January. As we have highlighted in prior reports, the production of oil is a game changer for the local economy. We are forecasting growth in Guyana of approximately 80% in 2020 and expect that growth will remain elevated over the next decade, driven by a combination of hydrocarbon output, and an increase in government and private consumption...Read more 

 

Guyana Quarterly Update - Political Concerns and Territorial Dispute - January 2019

Summary
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 

 

 

Guyana Research Update – March 2017

Synopsis of the Sovereign

Strengths

  • 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…Read more 

 

 

Honduras

 

Honduras’ Update – March 2017

Company Background

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 

Panama

 

Panama Update - February 2019

Summary
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 

 

 

Puerto Rico

 

Puerto Rico Update - February 2020

Summary
Our last look at Puerto Rico in July-2019 focused on the FED appointed Oversight Board’s decision to sue bondholders in an attempt to claw back approximately US$1 billion in fees and interest payments tied to $6 billion worth of debt issued between 2012 and 2014. The basis of the lawsuit is that the government breached the constitutional debt limit when it issued the additional bonds. Hence the Oversight’s Board’s argument is that the
US$6 billion worth of debt issued/raised by the Puerto Rico government was illegal and the US$1 billion of interest payments made to bondholders was also illegal.....Read more 

 

Puerto Rico Update - January 2019

Summary
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 

 

Puerto Rico Update - June 2018

Summary

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”)...Read more 

 

Puerto Rico Update - June 2018

Summary

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 

 

 

Puerto Rico Update - August 18 2017

Summary

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 

 

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 

Suriname

 

Suriname Update - January 2020

Summary
Suriname is on a steady growth path however the economy faces macroeconomic and political challenges over the medium term. The opening of the Merian mine in 2016 and the prospect of new commercially exploitable off-shore oil fields bode well for Suriname’s economic expansion over multiple periods. However there are headwinds in relation to the sovereign remaining dependent on commodities over the long-run, as despite recent finds, proven reserves for some exploitable resources are limited. Current gold and oil reserves are expected to last until 2034 and 2030, respectively....Read more 

Venezuela

 

Venezuela Update - November 2019

Summary
The difficult Venezuelan situation continues with no clear sign of a near-term resolution. Persistent fiscal deficits, high debt, hyperinflation, heightened political risk and ineffective monetary policy have become the norm for the once affluent South American oil giant. Sanctions imposed by the US have prevented the sale of oil, crippling the economy and government resources. Weak revenue inflows from oil combined with limited access to new technology has reduced hydrocarbon production levels which has further exacerbated the problem. Oil production generally tends to be capital intensive; Venezuelan oil, which is described as heavy sour crude, has a high sulphur content, is sand based, relatively harder to refine and requires ongoing improvements in production techniques to access...Read more 

 

Venezuela Update - March 2019

Summary
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 

 

Venezuela Update - November 2018

Summary
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 

 

Venezuela Update - November 2018

Summary

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 

 

Venezuela Update - March 2018

Summary

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 

 

Venezuela Update - November 2017

Summary

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 

 

Venezuela Update - September 2017

Summary

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 

 

Venezuela Update – April 2017

Summary

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 

 

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