Ecuador election surprise, Ethiopia restructuring, Nigeria-IMF clash and more

  • In Focus: Ecuador election — Market-friendly candidate edges towards run-off
  • Other highlights: Kenya's bad politics versus good valuations, Philippines cuts corporate tax rate
  • Chart of the week: Ecuador debt service on new foreign bonds
Ecuador election surprise, Ethiopia restructuring, Nigeria-IMF clash and more

In Focus: Ecuador election — Market-friendly candidate edges towards run-off

  • Guillermo Lasso of the Creo party looks set to have edged ahead of Yaku Perez, the indigenous Pachakutik party candidate, in a race to secure a place in the 11 April run-off election.

  • The result of Sunday's election is still uncertain, but Lasso, the market-friendly candidate with close ties to the US, now appears likely to face off against leftist Andres Arauz, who is supported by former Ecuadorian President Rafael Correa (who remains in exile), in the second round. At the time of writing, the latest official results are: Arauz 32.62%, Lasso 19.68%, Perez 19.48%.

  • The election comes at a time of crisis. Real GDP is expected to have fallen 9.5% last year (IMF forecast), due to the impact of Covid, which has increased poverty and income inequality amid severe financing constraints in the context of dollarisation. We downgrade the bonds to Sell from Hold.

Read our recent report here. For more background see here.

Recap of the week’s key credit research

Nigeria and IMF clash on FX and monetary policy

  • IMF reports strongly urge FX liberalisation, estimating an 18.5% overvaluation, and a move away from heterodox policies

  • But the authorities continue to resist, backtracking on previous promises. Reform unlikely without another crisis

  • Other key recommendations include reduction of CBN financing and revenue mobilisation to create fiscal space

Read the full report here.

Related reading: Nigeria set to rebase GDP by 2022/23; positive for macro numbers

Ethiopia: Debt sustainability analysis paints mixed picture

  • Our DSA does not indicate an urgent need for debt restructuring, but liquidity constraints could be more pressing

  • Private sector involvement may be necessary under the Common Framework, but it isn’t clear what form this will take

  • We retain our Hold recommendation on Ethiopia ‘24s as we await more clarity on the scope of the restructuring

Read the full report here.

Kenya: Bad politics versus good valuations as divided parliament restarts

  • Jubilee party has a slim parliamentary majority but is split between factions loyal to President Kenyatta and VP Ruto

  • Constitutional reform and fiscal devolution debate is driven by the real prize, succession to the Presidency in 2022

  • Structural reform prospects are very low but equity valuations may already reflect this, particularly outside Safaricom

Read the full report here.

Philippines cuts tax rate, reform upside in Duterte's last year

  • Philippines is cutting corporate tax rate by 5pp to 25%, bringing it more in line with the Asia emerging markets average

  • Structural reform is positive surprise given expectation that politics would be dominated by 2022 succession to Duterte

  • Equities and FX cheap vs history and dividend competitive with bond yield but absolute equity valuation less compelling

Read the full report here.

Chart of the week: Ecuador debt service on new foreign bonds (US$mn)

Summary of credit recommendations

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This report is independent investment research as contemplated by COBS 12.2 of the FCA Handbook and is a research recommendation under COBS 12.4 of the FCA Handbook. Where it is not technically a res...

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