S&P Global Analyst

The Ethiopian government declared a six-month state of emergency on 2 November, citing “a grave and imminent danger against the existence and sovereignty of the country” from the opposition Tigray Defence Forces (TDF), which captured two strategic cities in Amhara region – Dessie and Kombolcha – in the preceding days. This would facilitate further TDF advances along the Amhara stretch of the A2 highway and disrupt supplies into the capital. Combined TDF-OLA forces capturing and holding the city of Debre Birhan against pro-government counterattacks would increase the risk of insurgent forces advancing to Addis Ababa.

Credible national and international media report that Myanmar’s military is expected to launch Operation Anawrahta during early November. In the six-month outlook, Myanmar’s military will launch multiple combined forces operations in areas where PDFs are active, resulting in targeted and collateral damage of civilian assets. The military is likely to focus more on large-scale operations aimed at clearing out townships where PDFs are suspected to operate. Counterinsurgency operations involving airstrikes in urban townships like Yangon and Mandalay.

Record-high gas prices a shock to disposable income when the negative effects of the pandemic are still sizeable. A combination of higher demand and supply constraints has driven European wholesale natural gas prices to record highs. The crunch on ho...

HS Markit downgraded Kuwait’s short-term rating to 5 from 0 (to AA or Very High Quality from AAA or Highest Quality on the generic scale), while revising the short- and medium-term rating outlooks to Stable from Negative. Not only has the expiry of debt issuance legislation in 2017 rendered the raising of new debt impossible but tapping the large Future Generations Fund (FGF), in which most sovereign assets are nested, is not feasible either without parliamentary approval. We do not believe that growing fiscal imbalances and the government/parliament standoff will lead to debt solvency issues.

South Africa’s current account found significant support from resilient global commodity prices despite pressures from acceleration of financial account outflows witnessed during the first half of 2021. Gross dividend receipts decreased sharply during the second quarter. Resilient exports have been a GDP growth catalyst and boosted government revenue flows, allowing for a downward revision in IHS Markit’s projected fiscal deficit for fiscal year 2021/22 to 7.7% of GDP. The wide current-account surplus shielded South Africa’s external position against financial market capital outflows and avoided a sharper drawdown in foreign-exchange reserve holdings during the second quarter.

Sri Lanka has faced continued sovereign-debt-servicing pressure because of economic and financial conditions, with the significantly affected tourism sector affecting its ability to obtain foreign currency as a way to repay the debt because of its heavy reliance on external borrowings. In addition to the drop in foreign-exchange earnings, Sri Lanka’s high import demands and growing debt-servicing requirements have placed significant downward pressure on overall foreign exchange reserves, exacerbated by the weakening exchange rate of the rupee; since the beginning of the pandemic, foreign-exchange reserves have dropped from over USD7.6 billion to as low as USD2.4 billion.

Hundreds of migrants trapped along Mexico’s southern border protested on 15 September against the country’s immigration policy after Mexico’s National Migration Institute (Instituto Nacional de Migración: INM) and National Guard troops disbanded a migrant caravan on 5 September as it was travelling across Chiapas state, less than 50 kilometres north of the Guatemalan border. El Salvador’s Legislative Assembly also ratified in May a bilateral co-operation framework agreement with China for economic and technical assistance projects, involving USD500 million, likely providing an alternative for Bukele to resist US demands.

Guinean special forces appear to have carried out a successful coup against President Alpha Condé, who remains in their custody. Many ECOWAS leaders and regional presidents were dismayed by Condé’s behaviour and he was on particularly bad terms with the presidents of neighbouring Guinea-Bissau and Senegal, Umaro Sissoco Embaló and Macky Sall respectively, with the borders between the countries remaining closed since Guinea’s October 2020 presidential election. The coup plotters’ insistence that rampant corruption was a major motivation for intervention also suggests that opaque contracts in other sectors will be investigated.

Zambians go to the polls to elect a president and members of the National Assembly on 12 August, in what are poised to be pivotal elections. The August elections are key to determining Zambia’s future socio-economic direction, including finalising ongoing International Monetary Fund (IMF) and debt restructuring negotiations and addressing creeping resource nationalism in the mining sector. In this scenario, economic recovery would be foremost on the PF’s policy agenda. The re-elected government would be highly likely to focus on seeking to conclude ECF negotiations with the IMF, as well as sourcing external funding, within the six-month outlook.

Brazil's National Electric Systems Operator (Operador Nacional do Sistema: ONS) reported in July deteriorating hydro-supply conditions and potential challenges to meet peak demand in November 2021. The minister noted that the government has been taking measures to avoid rationing since the end of 2020, including activating thermoelectric plants and importing energy from Argentina and Uruguay.

IHS Markit has upgraded the risk rating for Oman's banking sector by 5 points to 45, remaining in the Significant Risk category (equivalent to ratings BB+ to BB- on the generic rating scale). Prior to this downgrade, IHS Markit downgraded Oman's medium-term rating to non-investment grade in 2020 because of the dual shocks of lower oil prices and the COVID-19 virus pandemic, which doubled the fiscal deficit to 22% of GDP and the current-account deficit (to 11% of GDP) and raised government debt to 84% of GDP, from 60% in 2019. The outlook on the medium-term sovereign risk rating has also been changed from Negative to Stable to reflect the improvement in oil prices.

Turkey has extended enhanced debt-restructuring legislation first put into effect in July 2019 for an additional two years, according to official Decree 4299 published in the Official Gazette on 14 July, as allowed under the original framework. Separately, bne IntelliNews reports that an additional TRY216-billion worth of loans had been restructured by TBB members outside of the auspices of the temporary article as of March 2021.

In San Antonio de los Baños, about 30 kilometres south of Cuban capital Havana, dozens of people protested spontaneously on 11 July against power outages, shortages of basic products, and an increase in coronavirus disease 2019 (COVID-19) cases. As tourism inflows remain depressed amid the rapid spread of COVID-19 variants globally, the further easing of restrictions on self-employment is likely to help the government quell discontent. On 14 July, Díaz-Canel temporarily lifted tariff restrictions for personal imports of food and medicines in order to alleviate shortages.

Egypt’s Financial Regulation Authority announced on 29 June that the government would start a programme of initial public offerings of state-owned companies in September 2021. This makes a public flotation harder to achieve, instead favouring trade sales. The Egyptian government is likely to favour selling assets to Gulf-based investors with limited transparency for any tender processes. The Egyptian government provides a full timeline and programme for the next two years’ calendar of proposed privatisations, and invites other institutions including private investment banks outside of the SFE to facilitate the process, improving the likelihood of transparency and investor oversight.

Colombian newspaperLa Republicahas reported that the government is well ahead in preparing a new tax bill that will be tabled in Congress later this year; the new legislative session starts on 20 July. New Finance Minister Jose Manuel Restrepo is actively pursuing consultations on the tax bill, after the previous one was abandoned on 2 May 2021, following violent nationwide protests over planned tax increases affecting lower-income groups. The proposed bill, according to government sources, would include the removal of multiple tax exemptions granted to the corporate sector and incorporate a one-off wealth tax.

The second wave of the coronavirus disease 2019 (COVID-19) pandemic, the risks of new outbreaks, and slow vaccination have worsened India’s short-term economic outlook and increased the uncertainties surrounding it. In this scenario, with inflation hovering around 8% in the second half of CY 2021, well above the central bank’s target range of 2–6%, the Reserve Bank of India would be forced to start raising policy interest rates in the fourth quarter of CY 2021 and deliver at least 125–175 bps in rate increases through CY 2022 to stave off inflation and defend the currency. Pent-up demand and accelerated vaccination should resume the economic recovery in the second half of FY 2021.

A strong economic recovery is expected in 2021, with Asia Pacific GDP growth forecast at 6.2% y/y, based on expectations that there will be progressive rollout of COVID-19 vaccines during 2021. Vietnam’s merchandise exports showed buoyant growth in the first four months of 2021, rising by 29.6% y/y, helped by rapid growth of 30.7% y/y for exports of mobile phones and parts. This is expected to result in a more protracted and gradual recovery path for trade in services for many Asia Pacific economies.

In April 2021, Turkey’s current-account deficit narrowed somewhat, but net portfolio outflows remained substantial, undermining the lira and straining foreign currency reserves. Although its headline foreign currency reserves held steady that month, Turkey took on greater short-term swaps to boost those numbers. For 2021 as a whole, IHS Markit is forecasting a modest reduction of Turkey’s merchandise-trade deficit. Expansionary monetary policies will also make it difficult to attract net capital inflows back again over the remainder of 2021. Swap lines to rebuild reserves are already extremely elevated.

Preliminary results from the second round of Peru’s presidential election, which took place on 6 June, show (as of the time of publication on 9 June) a likely victory for far-left candidate Pedro Castillo. Peruvian presidential candidate Pedro Castillo gestures at supporters from a balcony of his party's headquarters in Lima on 7 June 2021. With 98.33% of votes counted, Pedro Castillo from the far-left Free Peru (Perú Libre: PL) party was the frontrunner with 50.20%, while conservative candidate Keiko Fujimori of the Popular Force (Fuerza Popular: FP) party had 49.79%.The results are subject to change as some of the rural votes and foreign vote are still being counted.

The Central Bank of Kenya's (CBK) 2020 Bank Supervision Annual Report contains the biannual FinAccess Business Supply-Side Survey conducted in February 2021. The survey shows that 15.5% of the total value of MSME loans was classified as non-performing as of December 2020, compared with 13.6% in 2017. The survey attributes this rise to the coronavirus disease 2019 (COVID-19)-virus pandemic affecting borrowers' debt service capacity. It shows that MSME loans constitute around one-fifth of the overall banking sector's loans. Kenya has a sizeable MSME sector making up close to one-third of GDP.

Yesh Atid leader Yair Lapid, the main rival to outgoing Prime Minister Benyamin Netanyahu of the Likud party, announced on 2 June that an agreement had been reached to form a “Government of Change” that would end Netanyahu’s 12-year period in office. Importantly, to secure the support of Rightwards leader Naftali Bennett, whose party’s representation in parliament has fallen from seven to six after one defection, Lapid has accepted a rotational arrangement in which Bennett will serve the first two years of the four-year term as prime minister while Lapid serves as foreign minister.

Heavy fiscal spending on healthcare infrastructure and relief packages has caused increased dependence on multilateral loans and bond issuance that will delay the return to fiscal stability. Debt ratings for most Central American economies have been downgraded in recent years as government fiscal, regulatory, and operational policies have become increasingly erratic. Lower tax revenues and increased demand for government resources – combined with fiscal stimulus measures amounting to approximately 1.4% of GDP – have exacerbated Costa Rica’s weak fiscal position.

The South African rand’s strengthening exchange rate has made it one of the best-performing currencies in emerging markets so far this year, but the risk remains high of a significantly weaker rand during the second half of the 2021. Furthermore, the rand draws support from key fiscal and political developments in recent months. At current levels, IHS Markit’s purchasing power parity (PPP) estimates suggest that the rand’s exchange rate is overvalued, with a fair value closer to ZAR14.85:USD1.00.

Protests broke out in Colombia on 28 April over President Iván Duque’s introduction of controversial tax legislation. However, violence in the city of Cali has not receded; there, in addition to looting, violent confrontations erupted on Sunday (9 May) between indigenous demonstrators and civilians opposing the blockades, with Valle del Cauca Governor Clara Luz Roldán ordering a five-day lockdown of access roads to the region to limit the incursion into Cali of new protests. The government’s failure to incorporate all of these issues into the negotiations agenda would serve to trigger fresh demonstrations.

The oil price rebound is reflected in Saudi Arabia’s sovereign rating update. The rating is supported by Saudi Arabia’s assets, including the Public Investment Fund (PIF), the main sovereign wealth fund, with assets equivalent to close to USD400 billion, and the central bank’s reserves, which stood at USD441 billion at the end of 2020. Although a higher deficit might weaken the rating, the outlook for an economy that is less vulnerable to oil price volatilities is balancing risks again. The former attaches a Negative outlook, and the latter agency has a Stable outlook to its rating.