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  • Emerging Markets Debt Daily

    South Africa’s Fiscal Gap Back in Spotlight

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    July 22, 2019

    South Africa’s fiscal sustainability is in the spotlight again following reports that the state-owned power utility Eskom will get another ZAR59B (~USD4.25B) from the government over the next two years. This is not an official announcement – the follow-up to June’s bailout plan is expected tomorrow – but the numbers are smaller than what was expected before, which explains the rand’s outperformance this morning. A key question is how the plan will be funded (asset sales vs. no asset sales) and whether it will be accompanied by spending cuts. This will determine the size of the government’s fiscal hole. Right now, many observers expect it to widen to 5.5-6% of gross domestic product (GDP) in 2019.  

    Ukrainian assets rallied on indications that the presidential party got an outright majority in the snap parliamentary elections on Sunday. The next key step is the appointment of a Prime Minister, but if the results are confirmed the outlook for remaining structural reforms – and for the new IMF program – should improve considerably. The reform aspect – especially land reform – is crucial for Ukraine’s growth prospects. GDP warrants would be one obvious beneficiary under this scenario, but the upside for other assets is likely to increase as well.

    A massive upside in Thailand’s June trade surplus poses additional policy challenges for the central bank. The surplus surged to USD3.21B on weaker imports, adding to concerns about the already deteriorating growth outlook. The currency strength is a major headwind to growth, especially for exporters, which explains why the central bank introduced several measures targeting short-term capital inflows earlier this month. The “oversized” trade surplus might encourage additional efforts to limit the currency’s appreciation.

    Chart at a Glance: Thailand’s Trade Surplus - Headwinds to Growth?

    Thailand's Trade Surplus

    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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