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  • Emerging Markets Debt Daily

    South Africa Utility Reform Low on Power

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    October 29, 2019

    The South African government’s white paper on state-owned utility Eskom failed to meet expectations. Stronger than expected growth helped Colombia to keep its investment grade rating from S&P.

    South Africa’s (yet another) plan for the state-owned utility Eskom was released this morning—and it underwhelmed once again. Even though most commentators liked the fact that the transmission spinoff will begin in March 2020 and that the management will finally review (massive) employee costs, two big items—Eskom’s debt relief and the appointment of a CEO—were missing. If all goes well, we might get more information on these issues in the next 7-10 days, starting with tomorrow’s medium-term budget statement. But, unfortunately, it was business as usual for South Africa today, which means that concerns about the country’s growth outlook and the sovereign rating are here to stay

    Colombia managed to keep its investment grade rating (BBB-, stable outlook) from S&P. The agency believes that stronger than expected economic growth (see chart below) should help to stabilize the country’s debt-to-GDP ratio. S&P, however, will continue to keep a close eye on Colombia’s relatively large twin deficit (a sum of fiscal and current account balances), which is expected to remain close to 7% of GDP in 2019 and improve only marginally in 2020. The recent dynamics on the fiscal side were encouraging, but the government suffered a legal setback as it had to re-submit the tax reform bill to the parliament due to procedural irregularities.  

    The Lebanon crisis deepened this morning, following the resignation of Prime Minister Saad Hariri and counter-attacks of Hezbollah supporters on protesters. Local banks will stay closed on Wednesday, sparking legitimate concerns about bank runs when they will eventually re-open. There may be a case for the muddle-through scenario, but Lebanon’s ability to service its Eurobonds is getting increasingly questioned.  

    Chart at a Glance: Colombia’s Mini Growth Spurt Saves Sovereign Rating

    Colombia GDP Constant Prices

    Source: Bloomberg LP


    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

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