Emerging Sovereign Debt Markets NEWS

Number 34 Week 19 – 25 August 2017

Table of contents

ASIA ...... 2 S&P director calls Latin American growth 'quite disappointing' ...... 6 Afghanistan ...... 2 ...... 6 European Union approves €100 million package to support key reforms in Argentina posts primary fiscal deficit in Afghanistan ...... 2 July ...... 6 China ...... 2 ...... 6 Chinese government debt risks under Brazil lower house approves main text of control ...... 2 new BNDES benchmark rate ...... 6 China to roll over 600 bln yuan of special Brazil council approves massive state treasury bonds ...... 3 asset plan through 2018 ...... 6 Pakistan ...... 3 ...... 7 Pakistan plans to raise up to US$1bn via Moody's changes outlook on Chile's sukuk or Eurobond ...... 3 ratings to negative; affirms AA3 ratings ... 7 Philippines ...... 3 Ecuador ...... 7 Philippines may launch $200 mln panda Fitch affirms Ecuador's ratings at 'B'; bonds in Q4 ...... 3 outlook remains negative ...... 7 Saudi Arabia ...... 4 ...... 7 Saudi foreign reserves resume falling in Mexico central bank sees inflation July ...... 4 peaking after hikes, peso recovery ...... 7 Sri Lanka ...... 4 Nicaragua ...... 8 Sri Lanka raises $550 mln more via 3-yr Fitch Affirms Nicaragua at 'B+'; Outlook syndicated loan...... 4 Stable ...... 8 EUROPE ...... 4 ...... 9 Albania ...... 4 Venezuela bond prices drop on trading ban report ...... 9 Albania to sell 7.2 bln leks (54.4 mln euro) of 1-yr T-bills on Sep 5 ...... 4 AFRICA ...... 10 Bulgaria ...... 4 Congo ...... 10 Bulgaria's gross foreign debt stays flattish Congo says balances 2017 budget without in June ...... 4 printing money ...... 10 Hungary ...... 5 Cote D’Ivoire ...... 10 Hungarian central bank says ready to Fitch affirms Cote D'ivoire at 'b+'; outlook ease monetary conditions further ...... 5 stable ...... 10 Montenegro ...... 5 Egypt ...... 11 Montenegro to auction 22.5 mln euro 182- Yields mixed at Egyptian three and seven- day T-bills on August 29 ...... 5 year T-bond auction ...... 11 Poland ...... 5 Mauritius ...... 11 Poland's 2018 general government Mauritius 10-year Treasury bond yield at budget deficit seen at 2.7 pct of GDP-PM .. 5 4.89 pct ...... 11 Romania ...... 5 Nigeria ...... 11 Romania sells planned 500 mln lei of Nigeria bond auction raises 56 bln naira, March 2022 bonds ...... 5 less than half of amount on offer ...... 11 Russia ...... 5 Nigeria plans 193 bln naira Treasury bill sale next week...... 11 Moscow owes $0.6 bln to South Korea, repaid other state debt ...... 5 Rwanda ...... 11 LATIN AMERICA ...... 6 Rwanda raises 10 bln francs with 5-year

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Treasury bond...... 11 Caution may be creeping in to emerging markets ...... 13 Tunisia ...... 12 GLOBAL...... 14 Tunisia's currency reserves recover slightly with World Bank loan ...... 12 All eyes on central banks as primary flow EMERGING MARKET ...... 12 abates...... 14 Emerging economies await end to ECB largesse with record euro debt ...... 12

Please note: The information contained herein is selected by the PDM Network Secretariat from and is provided as a service to Subscribers. is considered to be a reliable source. However, the Secretariat cannot guarantee the accuracy of information reported and is not responsible for any opinions expressed and data enclosed.

demonstration of the EU's long-standing commitment to Afghanistan and its people. ASIA Following an overall positive review of progress

on key reform commitments, the EU's State Building Contract makes a direct contribution to Afghanistan the National Budget and provides the Government of Afghanistan with substantial European Union approves €100 million financial resources and flexibility to allocate package to support key reforms in these where they are most needed. The purpose Afghanistan is to improve services to the population, boost economic growth and reduce poverty, at a time 21-Aug-2017 when Afghanistan continues to face major 21August 2017 : Today, the European Union security, economic and political challenges.' (EU) approved a €100 million package to The SBC supports the Government of support Afghanistan in carrying out reforms Afghanistan to implement the reform agenda to improve its development policies, maintain presented at the Brussels Conference on macroeconomic stability, advance sound Afghanistan held in October 2016, as set out in public financial management and strengthen the Afghanistan National Peace and state budget transparency. The EU's decision Development Framework and the associated follows a positive assessment on progress in National Priority Programmes, to promote these reform areas over the last twelve months effective governance, women's economic against the background of a challenging security empowerment and basic service delivery situation. It is part of a State Building Contract (Citizens' Charter). (SBC) signed with the Government of

Afghanistan during the Brussels Conference on Ministry of Finance - Islamic Republic of Afghanistan Afghanistan on 4 October 2016. -SBC brief as published this content on 21 August 2017 and is solely annex- responsible for the information contained herein. This EU financial contribution for Afghanistan Distributed by Public, unedited and unaltered, on 21 is meant to support the Government of August 2017 16:23:22 UTC. Afghanistan in creating growth and jobs and (C) Copyright 2017 - Ministry of Finance - Islamic to ensure service delivery during a time of Republic of Afghanistan uncertainty that includes significant risks to the economy. H.E. Eklil Hakimi, Minister of Finance said: 'The approval of this allocation means that China Afghanistan has been making significant progress in crucial areas such as public policy, Chinese government debt risks under macroeconomic, financial management and control budget transparency and oversight. We welcome 25-Aug-2017 conditionality-based mechanism, such as the BEIJING, Aug 25 (Reuters) - China's State-Building Contract, they give the government debt risks are generally under Government of Afghanistan flexibility and fiscal control, though liabilities have risen relatively space to respond quickly to our countries fast in recent years, the official Shanghai evolving development priorities and reaffirm our Securities Journal reported on Friday citing a mutual commitments to see a prosperous, stable report from a government think tank. and self-reliant Afghanistan. I thank the EU, its Overall liabilities, including the shortfall in social member states, and the people of Europe for security funds, rose about 70 percent from 2010 their generous support to Afghanistan.' to 2015 to 70 trillion yuan ($10.50 trillion), the H.E. Franz-Michael Mellbin, EU Special Chinese Academy of Social Sciences (CASS) said Representative and Head of Delegation, said: in a report on the government's balance sheet. 'The allocation approved today is a very tangible PDM Network Weekly Newsletter on Emerging Markets For information, contact the PDM Network Secretariat at: [email protected] Follow us on Twitter @pdmnet and on our website wwwpublicdebtnet.org 2

China's gross domestic product (GDP) in 2015 government said it would raise US$1bn via a was 68.65 trillion yuan. sukuk bond in the 2017/2018 fiscal year (July- The think tank warned against the build-up of June). Pakistan in October 2016 raised US$1bn risks in local government debt, contingent via an oversubscribed US dollar sukuk. liability in foreign debt and bond issuance by Two officials at the Finance Division within the quasi-public agencies. finance ministry said Pakistan has begun work China's official government debt is relatively on the debt issue, including talks with potential low compared to its GDP, though many advisers, and suggested it was possible the analysts warn that high levels of debt among money may be raised via a Eurobond. state firms means actual levels of debt the "We have just started work to firm up this government could be liable for are much transaction but its size had not yet been higher. finalised," one senior finance ministry official The assets of the Chinese government exceeded told Reuters late on Tuesday, adding that it 125 trillion yuan in 2015, the report said. would depend upon the appetite and condition of The government is able to effectively cope with market. debt risks, the report said, adding that CASS' A second finance ministry official confirmed estimate of liabilities is the upper limit as it plans to raise debt, probably around the start includes all shortfalls and contingent debts. of November. Pakistan's 2016 sukuk had an interest rate of 5.5%, while a 2015 Eurobond ($1 = 6.6654 Chinese yuan) worth US$500m had a coupon rate of 8.25%. (Reporting by Stella Qiu and Elias Glenn; Editing by Pakistan's US$300bn economy has made vast Jacqueline Wong) strides since a balance of payments crisis in (( [email protected] ; 86-10-66271289; 2013 forced Islamabad to seek help from the )) International Monetary Fund (IMF), with growth in 2016/2017 hitting 5.3%, its fastest pace in a decade. China to roll over 600 bln yuan of But the IMF has recently warned that the macro- special treasury bonds economic gains made during 2013-2016 have 23-Aug-2017 "begun to erode" and pose a risk to economic BEIJING, Aug. 23 (Xinhua) -- China will roll outlook. over 600 billion yuan (about 90 billion U.S. The fund has singled out Pakistan's ballooning dollars) of special treasury bonds due next current account deficit as a source of concern. week, the Ministry of Finance (MOF) said The deficit hit US$12.1bn in 2016/2017, Tuesday. widening 148 percent on the previous year. As the treasury bonds issued in 2007 will mature The balance of payments pressure are in large on Aug. 29, the MOF will issue another 600 part due to import of machinery and other billion yuan to banks, including 400 billion yuan Chinese goods on the back of China's US$57bn of seven-year bonds and 200 billion yuan of 10- infrastructure investment as part of the Beijing- year bonds, with market-based yields, the MOF funded Belt and Road initiative. said in a statement. Foreign currency reserves held by the central The special issue will not impact liquidity in bank have fallen from US$18.9bn in October the financial markets and banking system, the 2016 to US$14.3bn in mid-August this year. People's Bank of China (PBOC) said in a statement. (Writing by Drazen Jorgic; Editing by Simon Cameron- While the MOF will issue bonds in the primary Moore) market, the central bank will buy the special (( [email protected] ; +92 307 8888 bonds in secondary market, so that the total 153; Reuters Messaging: debt level and the balance sheet items of the [email protected] )) central bank will remain stable, said Xu Zhong, an official with the PBOC. Enditem

Copyright (c) 2017 Xinhua News Agency Philippines

Philippines may launch $200 mln panda bonds in Q4 Pakistan 22-Aug-2017 MANILA, Aug 22 (Reuters) - The Philippines Pakistan plans to raise up to US$1bn may issue its maiden panda bonds around via sukuk or Eurobond October or November this year, its finance 23-Aug-2017 secretary said on Tuesday. ISLAMABAD, Aug 23 (Reuters) - Pakistan plans The government was still looking at raising $200 to raise between US$500m to US$1bn in debt million from the issue, Finance Secretary Carlos via an Islamic sukuk bond or a Eurobond later Dominguez told reporters. Panda bonds are this year, two government sources told yuan-denominated debt sold in China by foreign Reuters, amid growing concerns about the firms or governments. country's dwindling foreign currency reserves. Dominguez also said the government would In the annual budget announced in May, the probably issue global bonds next year to help PDM Network Weekly Newsletter on Emerging Markets For information, contact the PDM Network Secretariat at: [email protected] Follow us on Twitter @pdmnet and on our website wwwpublicdebtnet.org 3 finance its proposed 3.77 trillion peso ($73.25 billion) budget, but the size would not be significant. Sri Lanka

($1 = 51.4650 Philippine pesos) Sri Lanka raises $550 mln more via 3- (Reporting by Enrico dela Cruz; Editing by Jacqueline yr syndicated loan Wong) (( [email protected] ; +632 841- 24-Aug-2017 8938; Reuters Messaging: COLOMBO, Aug 24 (Reuters) - Sri Lanka has [email protected] )) used a greenshoe option to raise an additional $550 million through a three-year syndicated loan that was pre-funded by a six-bank group in early May, extending its total external Saudi Arabia borrowings through syndicated loan to $1 billion, a top treasury official said. Saudi foreign reserves resume falling "We have received $550 million from the three- in July year syndicated loan at six-month LIBOR plus 2 percent rate. This is in addition to $450 million 24-Aug-2017 we had already raised," S.R. Attygala, deputy By Andrew Torchia treasury secretary told reporters in Colombo on DUBAI, Aug 24 (Reuters) - Saudi Arabia's Thursday. foreign reserves resumed falling in July, The inflow could help stabilise market interest central bank data showed on Thursday, rates, Attygala said. suggesting the government may remain under pressure to draw them down to cover a Bank of Baroda, Deutsche Bank , Indian Bank, budget deficit caused by low oil prices. Qatar National Bank, State Bank of India and Riyadh began liquidating the reserves in late Sumitomo Mitsui Banking Corp were the 2014 and they dropped sharply from a record mandated lead arrangers and bookrunners of $737 billion in August that year. In June 2017, the loan. they rose month-on-month for the first time in Sri Lanka raised $1.5 billion from a 10-year over a year, prompting speculation that Riyadh bond at 6.20 percent, well inside the initial might have cut its deficit enough to no longer guidance of 6.625 percent early this year. need cash from the reserves. But Thursday's data showed the central bank's (Reporting by Shihar Aneez; Editing by Biju Dwarakanath) net foreign assets fell by $6.3 billion from June (( [email protected] ; +94-11-232- to $487 billion in July, their lowest level since 5540; Reuters Messaging: early 2011. The reserves shrank 12.8 percent [email protected] twitter: from a year earlier. https://twitter.com/shiharaneez)) The fall occurred despite the government's launch of monthly domestic issues of Islamic bonds in July, which raised 17 billion riyals. Riyadh has said it wants to cover the deficit EUROPE through debt sales as much as possible rather than by running down the reserves. Riyadh sold foreign securities in July to raise Albania money, the data showed. The central bank's holdings of foreign securities shrank by $4.3 Albania to sell 7.2 bln leks (54.4 mln billion from June to $333 billion, while deposits with banks abroad edged up by almost $1 billion euro) of 1-yr T-bills on Sep 5 to $95 billion. 23-Aug-2017 Thursday's central bank data also pointed to a TIRANA (Albania), August 23 (SeeNews) - weak Saudi economy. Outstanding bank loans to Albania will offer 7.2 billion leks ($64.1 the private sector shrank from a year earlier for million/54.4 million euro) worth of one-year the fifth straight month in July; they fell 1.3 Treasury bills at an auction on September 5, percent, after a 1.4 percent drop in June. according to data from the country's central bank. (Reporting by Andrew Torchia; Editing by Toby On Tuesday, Albania offered and sold 8.014 Chopra) billion leks of one-year government securities. (( [email protected] ; +9715 6681 The issue carried a coupon of 2.23%, up from 7277; Reuters Messaging: 2.18% on August 8. [email protected] )) (1 euro = 132.321 leks) Copyright 2017 SeeNews. All rights reserved.

Bulgaria

Bulgaria's gross foreign debt stays PDM Network Weekly Newsletter on Emerging Markets For information, contact the PDM Network Secretariat at: [email protected] Follow us on Twitter @pdmnet and on our website wwwpublicdebtnet.org 4 flattish in June bids by 12:00 CET on August 29, the central 24-Aug-2017 bank said. SOFIA (Bulgaria), August 24 (SeeNews) – Montenegro's finance ministry carried out its Bulgaria's gross foreign debt edged up by an latest auction of 182-day T-bills on August 21, annual 0.01% to 34.61 billion euro ($40.8 when it sold government securities with a billion) at the end of June, the central bank nominal value of 17.6 million euro. The average said on Thursday. weighted yield came in at 1.53%. Gross foreign debt at the end of June was Montenegro sold 184.5 million euro worth of T- equivalent to 70.0% of the projected 2017 gross bills in 2016, up 5.3% on the year. domestic product, the Bulgarian National Bank (BNB) said in a statement. ($ = 0.847478 euro) Bulgaria's gross foreign debt was equivalent to Copyright 2017 SeeNews. All rights reserved.

73.1% of GDP at the end of June 2016. Month-on-month, Bulgaria's external debt increased by 0.5% in June. Poland

($ = 0.8475 euro) Copyright 2017 SeeNews. All rights reserved. Poland's 2018 general government budget deficit seen at 2.7 pct of GDP- PM Hungary 24-Aug-2017 WARSAW, Aug 24 (Reuters) - Poland's general government budget deficit is envisaged at 2.7 Hungarian central bank says ready to percent of gross domestic product in 2018, ease monetary conditions further Prime Minister Beata Szydlo said on Thursday 24-Aug-2017 after her government approved a preliminary BUDAPEST, Aug 24 (Reuters) - Downside risks draft of the budget for next year. to inflation prevail in Hungary, and the central Earlier, the government envisaged next year's bank will stand ready to ease monetary budget deficit at 2.5 percent of the national conditions further using unconventional output. targeted tools, the bank said in an emailed reply to Reuters questions on Thursday. (Reporting by Pawel Sobczak, Agnieszka Barteczko The National Bank of Hungary, which left its and Bartosz Chmielewski; Writing by Lidia Kelly) base rate unchanged on Tuesday at 0.9 percent, (( [email protected] ; +48 22 653 9722; Reuters Messaging: said several factors had dampened the [email protected] )) inflationary effect of surging wages, the external environment posed downward inflation risks and continuosly rising housing prices were no reason for concern. Romania The bank also said that a subtle change in the wording of its statement on Tuesday "clearly Romania sells planned 500 mln lei of confirms compared to the previous statement March 2022 bonds that the Council will stand ready to ease monetary conditions further using 24-Aug-2017 unconventional, targeted instruments." BUCHAREST, Aug 24 (Reuters) - Romania sold a planned 500 million lei ($128.70 million) (Reporting by Krisztina Than and Sandor Peto) worth of March 2022 treasury bonds on (( [email protected] ; +36 1 327 Thursday, with the average accepted yield at 4745; Reuters Messaging: 2.65 percent, central bank data showed. [email protected] )) Debt managers last issued the paper in July at 2.54 percent. So far this year, Romania has sold just under 33 billion lei and 340 million euros of domestic bills Montenegro and bonds. It has tapped foreign markets for 1.75 billion euros of 2027 and 2035 bonds. Montenegro to auction 22.5 mln euro 182-day T-bills on August 29 ($1 = 3.8851 lei) (Reporting by Luiza Ilie) 24-Aug-2017 PODGORICA (Montenegro), August 24 (SeeNews) - Montenegro will offer 22.49 million euro ($26.54 million) of 182-day Russia Treasury bills at an auction on August 29, according to an announcement posted on the Moscow owes $0.6 bln to South Korea, central bank's website. The government securities will mature on repaid other state debt February 28, 2018. 21-Aug-2017 Interested investors will be able to place their MOSCOW, Aug 21 (Reuters) - Russia owes PDM Network Weekly Newsletter on Emerging Markets For information, contact the PDM Network Secretariat at: [email protected] Follow us on Twitter @pdmnet and on our website wwwpublicdebtnet.org 5

$594.3 million to South Korea, having repaid slowed public works projects. all other state foreign debt, the Russian While has an investment grade rating of Finance Ministry said on Monday. BBB+, Sifon Arevalo said "two years ago it was The ministry said it had to pay the outstanding much more comfortable at this rating level than debt to South Korea by the end of 2025. It did it is now." not provide any other details. After the Soviet Union collapsed in 1991, Russia (Reporting by Eliana Raszewski; Writing by Caroline on took the responsibility to redeem outstanding Stauffer; Editing by Tom Brown) debt to the USSR's creditors. While defaulting on (( [email protected] ; +54 11 its own debt in 1998, Russia managed to start 4318 0668; Reuters Messaging: paying back Soviet foreign debt in the 2000s [email protected] )) when prices for oil, Russia's key export, were high. The ministry also said on Monday it has paid Argentina back $125.2 million to Bosnia, something that Moscow had announced in March.) Argentina posts primary fiscal deficit in (Reporting by Andrey Ostroukh; Editing by Alison July Williams) 22-Aug-2017 (( [email protected] ;)) BUENOS AIRES, Aug 22 (Reuters) - Argentina posted a July primary fiscal deficit of 22.090 billion pesos ($1.252 billion), the treasury ministry said on Tuesday, down from 57.039 LATIN AMERICA billion pesos in June. In the first half of the year the deficit was 144.286 billion pesos, or 1.5 percent of gross S&P director calls Latin American domestic product. growth 'quite disappointing' 25-Aug-2017 ($1 in late July = 17.6475 pesos) By Eliana Raszewski (Reporting by Eliana Raszewski; Writing by Caroline Stauffer; Editing by Matthew Lewis) BUENOS AIRES, Aug 24 (Reuters) - Latin (( [email protected] )( +54 11 4510 2591) ( America will likely grow a modest 1 percent or +54 9 11 5830 7443) (Reuters Messaging: less as a region this year as governments [email protected] )) struggle to pass reforms after years of populism and economic mismanagement, a managing director of Standard & Poor's said on Thursday. Brazil That is well below the 2.5 percent growth rate projected for the United States and 6 percent in Brazil lower house approves main text Asia, said Roberto Sifon Arevalo, who follows sovereign and international public finance of new BNDES benchmark rate ratings in Latin America for the credit rating 24-Aug-2017 agency. BRASILIA, Aug 24 (Reuters) - Brazil's lower "Many countries, especially the big ones in the house of Congress on Thursday approved the region, are coming out of high commodity prices main text of a bill creating a market-based which allowed them to do a lot of populism, with benchmark rate for state lender BNDES, in a a lot of spending and little control and this has a major victory for President Michel Temer. cost," he said in an in an interview. The proposal is one of Temer's top priorities to "The region is quite disappointing," he said. fix the country's long-term public finances and Sifon Arevalo praised center-right Argentine pave the way for lower interest rates as it President Mauricio Macri's reform efforts since reduces the scope for discretionary subsidies taking office in late 2015 but said he would like through BNDES lending. to see the fiscal deficit lowered faster in the (Reporting by Silvio Cascione) region's third largest economy. (( [email protected] ; 55 11 "The level of debt keeps growing," he said. 5644 7768; Reuters Messaging: In Brazil, the region's largest economy, Sifon [email protected] )) Arevalo said the agency was waiting to see if planned reforms came to fruition. S&P last week held Brazil's rating at "BB" while lowering its Brazil council approves massive state outlook to negative. asset plan through 2018 In , which passed a tax reform late last year, Sifon Arevalo said S&P wanted to see new 23-Aug-2017 fiscal numbers efore deciding whether to change BRASILIA, Aug 23 (Reuters) - A Brazilian its rating. government council approved on Wednesday S&P has a "relatively low growth estimate" for a massive sale of state assets including stakes Peru due to fallout from a corruption scandal in some of the country's busiest airports as involving Brazilian builder Odebrecht, which has well as oil exploration, highway and power PDM Network Weekly Newsletter on Emerging Markets For information, contact the PDM Network Secretariat at: [email protected] Follow us on Twitter @pdmnet and on our website wwwpublicdebtnet.org 6 dam licensing rights, as President Michel Temer seeks to reduce state involvement in the economy and cut a widening budget gap. Mexico The government's Investment Partnership Program said that buyers of licensing rights Mexico central bank sees inflation would be required to invest an estimated 44 peaking after hikes, peso recovery billion reais ($14 billion). The council known as PPI also said that the Mining and Energy Ministry 24-Aug-2017 has submitted a request to end state control of MEXICO CITY, Aug 24 (Reuters) - Most of power holding utility Centrais Elétricas Mexico's central bank board members believe a recent series of interest rate increases and a Brasileiras SA for analysis. stronger peso currency should tame a spike in

consumer prices, minutes from a policy ($1 = 3.1392 reais) meeting earlier this month showed on (Reporting by Leonardo Goy and Lisandra Paraguassu; Writing by Guillermo Parra-Bernal; Editing by Cynthia Thursday. Osterman) Mexico's board voted 5-0 to leave its benchmark (( [email protected] ; Tel: +55-11-5644-7714; interest rate at 7.00 percent this month after the Mob: +55-119-8346-7153; Reuters Messaging: bank hiked rates in the previous seven meetings [email protected] )) to counter a surge in inflation to its highest level in more than eight years.

A majority of members noted that those rate increases were now beginning to be reflected in Chile consumer prices that showed "a certain reversal in trend." A majority of the board also noted that Moody's changes outlook on Chile's a "significant appreciation" in the peso was ratings to negative; affirms AA3 ratings helping. 25-Aug-2017 Still, the majority said that they "will be Aug 24 (Reuters) - vigilant to maintain a prudent monetary policy in order to strengthen the anchoring of Moody's changes outlook on Chile's ratings to medium and long-term inflation expectations negative; affirms AA3 ratings. and to achieve convergence of inflation to its Moody's says Chile's country ceilings are objective" of 3 percent, according to the unchanged. minutes. Moody's says GDP growth in Chile has That backed expectations that the central bank undergone a structural shock from which it is will not soon move to cut back borrowing costs, unlikely to fully recover. which are at their highest level since early 2009, Moody's on Chile says decision reflects gradual analysts said. but broad-based erosion in Chile's credit profile, Mexico's peso has gained about 17 percent this which the negative outlook signals may year. The currency bounced back from a record continue. low in January as U.S. President Donald Trump Moody's on Chile says long-term foreign was seen moving away from his threats to slap currency bond ceiling remains at AA1. hefty tariffs on Mexican-made goods.

Data earlier on Thursday showed the inflation ( [email protected] ;) rate in early August rose more than expected to 6.59 percent. Investors have been gradually pushing back bets Ecuador on when the central bank could reduce borrowing costs. Fitch affirms Ecuador's ratings at 'B'; Yields on Mexican interest rate swaps have moved from indicating a rate cut will happen outlook remains negative before mid-2018 to the likelihood it will now 24-Aug-2017 take place around September 2018. Aug 24 (Reuters) - Fitch: Minutes showed the majority of members said Fitch affirms Ecuador sovereign ratings at B; even though inflation would continue to be negative outlook. above 6 percent in the next few months, it Fitch says Ecuador's high fiscal deficits and weak appeared to be reaching its peak, and forecast growth prospects are leading to a rapid rise in that by the end of the year the rate would begin general government debt. to cool. Fitch - Ecuador's debt tolerance comparatively In the second half of 2018, the majority weaker due to high commodity dependence, predicted that inflation would be heading toward constrained external financing flexibility. its 3 percent target. Fitch - expects Ecuador's government to meet its financing needs through a combination of (Reporting by Dave Graham, Frank Jack Daniel and bilateral loans from China, fresh multilateral Michael O'Boyle; Editing by Tom Brown) loans. (( [email protected] ; +52 1 55 5282 7146; Reuters Messaging: ( [email protected] ;) [email protected] ))

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political window for passage of reforms may not occur until 2018 (after the November 2017 Nicaragua municipal elections). Fitch expects the government will continue to Fitch Affirms Nicaragua at 'B+'; meet its financing needs, USD356 million in Outlook Stable 2017, with close to USD100 million domestic issuance and multilateral credits. Fitch expects 23-Aug-2017 that the financial and external risks from the NEW YORK, August 23 (Fitch) Fitch Ratings has U.S. congressional NICA Act bill, if passed, affirmed Nicaragua's Long-term foreign would be muted by the limited size of the U.S. currency Issuer Default Ratings at 'B+' with a Stable Outlook. voting shares in the affected multilateral A full list of rating actions follows at the end of lenders. this release. PetroCaribe risks to public and external finances KEY RATING DRIVERS appear manageable. The Venezuelan Nicaragua's credit ratings reflect its PetroCaribe programme, which provided FDI and macroeconomic stability, economic performance external loans with concessional terms to the and prudent public financial management Nicaraguan private sector, is winding down. relative to the 'B' median. The ratings are Private external debt to Venezuela totalled constrained by the sovereign's large external USD3.2 billion or 24.8% of GDP in 2016. At vulnerabilities and structural weaknesses current oil prices, Fitch expects a net outflow of including low per capita income, shallow funds in 2017 as private borrowers begin domestic capital market, social and governance repaying close to USD200 million per year indicators. during 2017-2019. The government has already Nicaragua's macroeconomic performance is absorbed into the budget 0.4% of GDP in related robust with decreased inflation. The economy social programmes. The balance-of-payments has expanded at an average annual rate of risks are reduced by PetroCaribe's concessional 5.2% over the past five years, higher than the debt service terms, the central bank's external 'B' median of 3.5%. External factors (U.S. liquidity (USD2.6 billion net international export demand, low international oil prices, reserves and a USD200 million contingent line), foreign investment receipts and access to and moderating import demand. external financing) remain broadly supportive for Nicaragua remains vulnerable to other shocks. growth. Fitch expects economic growth to More than 80% of government debt is moderate slightly toward its 4.5% potential rate foreign-currency denominated and so is in 2017-2018, reflecting reduced investment and exposed to exchange-rate risk. The consumption stimulus from Venezuela's government has less financing flexibility relative to some 'B' and 'BB' rated peers, PetroCaribe programme. reflecting the underdeveloped domestic Consumer price inflation has converged with the capital market and a preference for lower- 'B' median. Inflation, which averaged 3.5% in interest official credits for its external 2016 and was 3.1% yoy in July, has been financing needs. subdued by low, stable fuel import prices in the Nicaragua has large external vulnerabilities. The context of the predictable crawling peg currency current account deficit, forecast at 8.4% of GDP regime. in 2017, is large relative to the 'B' median of Nicaragua's recent fiscal performance has 5.5% of GDP and those of its Central American supported its credit profile relative to peers. neighbors, although FDI finances three-quarters. The general government debt and interest Its exports, although diversifying, are burdens are moderate at 41.9% of GDP in comparatively intense in agricultural 2016 and 4% of revenues in 2017, respectively, and below the 'B' median. The commodities while fuel imports are substantial. central government has a track record of The financial system and financial contracts are running the budget with a zero primary highly dollarized, driven in part by the stabilized balance. currency arrangement. Net external debt, 91.5% However, Fitch expects larger general of current external receipts (CXR) in 2016, government deficits to gradually increase the surpasses the 'B' median of 68.2%. debt trajectory beginning in 2019, reversing the The central bank maintains external liquidity and previous trend of falling debt levels. Fitch also contingent credit lines from multilateral banks to expects the general government deficit to offset shocks. Net international reserves cover increase to 1.8% of GDP in 2017, up from 1.6% 3.6 months of current external payments and of GDP in 2016, driven by a step-up in support Nicaragua's international liquidity ratio infrastructure outlays and the social security at 200% of current external debt service and institute (INSS) operational deficit. The fund's short-term external liabilities. Nicaragua's operational deficit has increased in recent years external debt service is low at 10.7% of CXR in to 0.4% of GDP in 2016 and is currently 2017. financed from the scheme's reserves (estimated The Ortega administration maintains a stable by the IMF to be depleted in 2019), limiting macroeconomic policy environment supported by immediate pressure on the debt trajectory. Fitch private-sector consultation on economic policy. expects that structural reforms will be required However, Nicaragua's governance indicators are to balance the INSS fund and that the earliest in line with the 'B' median. The 2016 national PDM Network Weekly Newsletter on Emerging Markets For information, contact the PDM Network Secretariat at: [email protected] Follow us on Twitter @pdmnet and on our website wwwpublicdebtnet.org 8 elections further centralized political institutions as President Ortega of the FSLN Party won his Media Relations: Benjamin Rippey, New York, Tel: +1 third consecutive term since 2006, the first lady 646 582 4588, Email: won the vice presidency, and the FSLN enlarged [email protected]. Additional information is available on its legislative majority. www.fitchratings.com SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns Nicaragua a score equivalent to a rating of 'B' on the Long- Venezuela term FC IDR scale. Fitch's sovereign rating committee adjusted the Venezuela bond prices drop on trading output from the SRM to arrive at the final LT FC ban report IDR by applying its QO, relative to rated peers, as follows: 23-Aug-2017 --Public finances: +1 notch, reflecting that By Paul Kilby Nicaragua has a track record of prudent public NEW YORK, Aug 23 (IFR) - Venezuelan debt financial management, which has supported sold off Wednesday after a report that the US improving macro stability and domestic debt government was considering banning US banks from trading the country's paper. reduction. External debt relief has also lowered PDVSA's 12.75% 2022s were trading as low as general government debt. 44.75, down from around 45.65 at Tuesday's Fitch's SRM is the agency's proprietary multiple close and two points weaker than levels seen regression rating model that employs 18 earlier in the week, according to MarketAxess. variables based on three year centred averages, It was a similar story with PDVSA's 6% 2026s, including one year of forecasts, to produce a which fell about a point to 30.00. score equivalent to a LT FC IDR. Fitch's QO is a The Wall Street Journal reported late Tuesday forward-looking qualitative framework designed that the US was considering temporarily to allow for adjustment to the SRM output to prohibiting US-regulated banks from trading assign the final rating, reflecting factors within Venezuelan debt. our criteria that are not fully quantifiable and/or While President Donald Trump has threatened not fully reflected in the SRM. military action in response to the erosion of RATING SENSITIVITIES democratic process in Venezuela, so far he has The Stable Outlook reflects Fitch's view that limited himself to sanctions against individuals. upside and downside risks to the rating are But the US government has been on the broadly balanced. The main risk factors that, offensive following a Latin America tour by Vice individually or collectively, could trigger a rating President Mike Pence, who also addressed exiled action are: Venezuelans in Miami on Wednesday. Positive: By talking about these options, Washington --Sustained economic growth that reduces could simply be applying more pressure to Nicaragua's per-capita income gap relative to Venezuelan President Nicolas Maduro and his peers; supporters, many of whom hold the country's --Reduction of external vulnerabilities; debt. --Sustained improvement in structural "It might be a warning shot for the generals who weaknesses, including stronger governance and own these bonds," said Jorge Piedrahita, CEO of social indicators. Puma Investments. Negative: POLITICALLY EFFECTIVE --Weakening of the external balance sheet or Certainly such a move would external liquidity; disproportionately hurt bondholders while --Deterioration of public finances and debt doing little to hurt PDVSA or Venezuela, which dynamics; are effectively cut off from bond market --Emergence of increased macroeconomic access anyway. imbalances or financial instability. "It would cause more damage than good; I don't KEY ASSUMPTIONS know how it harms PDVSA or Venezuela," said --Fitch assumes that Nicaragua's economy and Siobhan Morden, head of Latin American fixed- balance of payments will continue to benefit income strategy at Nomura. from relatively low oil prices (USD52.5/bl in "The market is trading lower, but I think that 2017, USD55.0/bl in 2018, and USD60.0/bl) and passes once we realize that it is not a logical supportive U.S. economic growth rates (2.1% in approach." 2017, 2.6% in 2018, and 2.2% in 2019). The opposition has waged an effective campaign Fitch has affirmed Nicaragua's ratings as follows: against institutions helping to fund a --Long-term foreign-currency IDR at 'B+'; government seen responsible for the country's Outlook Stable; deepening economic crisis and food shortages. --Long-term local-currency IDR at 'B+'; Outlook Goldman Sachs was widely criticized in June for Stable; buying US$2.8bn of 2022 bonds issued by --Short-term foreign-currency IDR at 'B'; PDVSA and indirectly helping the government --Short-term local-currency IDR at 'B'; raise capital. --Country Ceiling at 'B+'. Credit Suisse has also barred itself from any

PDM Network Weekly Newsletter on Emerging Markets For information, contact the PDM Network Secretariat at: [email protected] Follow us on Twitter @pdmnet and on our website wwwpublicdebtnet.org 9 capital raising for the sovereign, as well as the but two months between January and July buying and selling of PDVSA 2022s and without reverting to old habits of printing Venezuela's 2036s. money to pay bills, its finance minister said on "My two cents is: we'll end up with a Russia-like Saturday. ban on primary issues," one hedge fund manger "We decided in January to tighten the budget told IFR. "I don't see it extending to secondary and fix as an objective a zero deficit, or where market transactions." this is not possible, a deficit reduced and easily paid off with receipts from coming Former Venezuelan planning minister Ricardo months," the minister, Henri Yav Mulang, said Hausmann effectively suggested something at a news conference in Kinshasa. similar earlier this year when he argued JP He added that this was part of several reforms Morgan should exclude Venezuela from its "to the fiscal system, considered today as indices. complex, asphyxiating ... and ultimately Such measures could have a deep impact on discouraging for private enterprise." the banks and large institutional investors that hold and trade some of the US$60bn in He said that this has been achieved without outstanding Venezuelan and PDVSA bonds. printing money, a stance reinforced by the "For participants in compliance with US central bank governor Deogratias Mutombo who regulations, counsel would likely suggest they was alongside him at the news conference. shed these bonds, perhaps as the best way to "There is no longer any question of using deal with this matter," said Michael Roche, an monetary means to finance the budget deficit," EM fixed-income analyst at Seaport Global. Mutombo said. Some argue that a ban on secondary trading Congo has faced a worsening economic crisis this year, with inflation now at 50 percent, could actually provide the government with and the Congolese franc losing 30 percent much-needed financing relief - and a further making it one of the world's worst performers excuse to blame the US for its financial woes. this year. "The government could take it as an excuse to Neither official explained how Congo had default, which provides it with more resources as managed to balance its budget in the current they no longer have to service their debt," said difficult economic climate, which has been Shamaila Khan, a director of AllianceBernstein's caused by low commodity prices which last year emerging-market debt strategies. kept deficits high. Civil servants, which take up "In a weird counterintuitive way, it could help nearly three quarters of Congo's spending, have rather than hurt." not been paid for months. Indeed, such sanctions would sabotage any sort But the governor reiterated that Congo's forex of the debt exchange that would provide reserves were down to just three weeks of breathing space ahead of billions of dollars in import cover in the latest available data, from amortization payments coming due this year. July, or $706 million dollars. But Russ Dallen, managing director of boutique However, he said he expected the Congolese bank Caracas Capital, believes such an exchange franc to continue to recover, as it has in the past could still be on the cards. three weeks to 1550 francs per U.S. dollar, from Despite reputational risks, foreign bondholders 1700 francs. could be enticed into a swap if PDVSA backed any new bonds with gold reserves or even the (Reporting by Amedee Mwarabu; Writing by Tim shares of its US unit . Cocks; Editing by Richard Balmforth) Russian oil producer Rosneft has been looking to (( [email protected] ;)) return Citgo shares backing a loan in exchange for stakes in oil fields in Venezuela. "But if US institutions can't participate in debt exchanges because of these restrictions, then Cote D’Ivoire they have a problem," Dallen said. Fitch affirms Cote D'Ivoire at 'b+'; (Reporting by Paul Kilby; Editing by Marc Carnegie) outlook stable (( [email protected] ; 646 223 4733; Reuters Messaging: 22-Aug-2017 [email protected] )) Aug 22 (Reuters) - Fitch affirms Cote D'Ivoire at 'b+'; outlook stable. Fitch says Cote D'Ivoire's IDRS are weighed AFRICA down by low governance and development

indicators. Fitch on Cote D'Ivoire - heightened security & Congo political tensions to persist in run-up to 2020 presidential elections & could constrain reform Congo says balances 2017 budget impetus. without printing money Fitch on Cote D'Ivoire - cocoa revenue will decline further in 2018 as sale prices will be 19-Aug-2017 lower for full year. KINSHASA, Aug 19 (Reuters) - The Democratic Republic of Congo balanced its budget in all PDM Network Weekly Newsletter on Emerging Markets For information, contact the PDM Network Secretariat at: [email protected] Follow us on Twitter @pdmnet and on our website wwwpublicdebtnet.org 10

(Reporting by Taenaz Shakir) secondary market. The DMO paid 16.80 (( [email protected] ;)) percent for the 2021 and 2027 bonds and 16.90 percent for the 2037 debt. Investors

demanded yields as high as 17 percent, auction results showed, to help boost returns Egypt further above inflation, which was 16.1 percent in June. Yields mixed at Egyptian three and "Pension funds and insurance firms cut back seven-year T-bond auction their demand ... because of expectations of higher yields," one dealer said, adding that 21-Aug-2017 those two sectors, which dominate the local Corrected to show three-year T-bond fell and bond market, subscribed for just 63.65 billion seven-year rise naira. CAIRO, Aug 21 (Reuters) - Yields on Egypt's Nigeria, Africa's biggest economy, is planning for three-year treasury bonds fell while yields on a budget deficit of 2.36 trillion naira this year as the seven-year bonds rose at an auction on Monday, data from the central bank showed. it tries to spend its way out of recession. It The average yield on the three-year bonds expects to raise funds from the local market to dropped to 16.804 percent on Monday from cover more than half the deficit. 16.813 percent at the last auction. The seven- The DMO issues bonds every month. year bond yield rose to 16.983 percent from At Wednesday's auction, the debt office sold 16.750 percent. 9.18 billion naira worth maturing in five years, 17.51 billion maturing in 10 years and 29.36 (Reporting by Amina Ismail; Editing by Keith Weir) billion maturing in 20 years. (( [email protected] ; +20 2 2394 8114; )) (Editing by Robin Pomeroy and David Holmes) (( [email protected] ; +234 1 803 3964 138; ))

Mauritius Nigeria plans 193 bln naira Treasury Mauritius 10-year Treasury bond yield bill sale next week at 4.89 pct 23-Aug-2017 23-Aug-2017 LAGOS, Aug 23 (Reuters) - Nigeria plans to PORT LOUIS, Aug 23 (Reuters) - A 10-year raise 193.14 billion naira ($614 mln) worth of Treasury bond fetched a weighted average treasury bills at an auction on Aug. 30, the yield of 4.89 percent at auction on central bank said on Wednesday. Wednesday, the central bank said. The bank will offer 26.14 billion naira in three- The Bank of Mauritius said the 1.8 billion rupee month paper, 62 billion in six-month bill and 105 ($54.41 million) bond with a coupon of 4.70 billion in one-year paper. The auction result will percent attracted strong demand from investors, be announced on the same day. who offered 4.900 billion rupees in bids. The central bank issues treasury bills twice a month to help the government finance its ($1 = 33.0800 Mauritius rupees) budget deficit, curb money supply growth and (Reporting by Jean Paul Arouff; Editing by Duncan provide avenues for lenders to manage Miriri) liquidity. (( [email protected] ; Tel: +254 20 Nigeria is planning to refinance $3 billion worth 4991239; Reuters Messaging: of treasury bills denominated in the local [email protected] )) currency with dollar borrowing to lower costs

and improve its debt position, its finance minister has said. Nigeria ($1 = 314.50 naira) (Reporting by Oludare Mayowa; Editing by Chijioke Nigeria bond auction raises 56 bln Ohuocha; editing by John Stonestreet) naira, less than half of amount on offer (( [email protected] ; +234 803 3964 138; )) 24-Aug-2017 By Oludare Mayowa LAGOS, Aug 24 (Reuters) - Nigeria raised 56.05 billion naira ($179 million) in a bond auction Rwanda on Wednesday, less than half the amount on offer as domestic pension funds and insurance firms cut orders due to low yields, traders Rwanda raises 10 bln francs with 5- said on Thursday. year Treasury bond The Debt Management Office (DMO) offered 135 24-Aug-2017 billion naira worth of bonds maturing in 2021, KIGALI, Aug 24 (Reuters) - Rwanda sold a five- 2027 and 2037, but investors shunned the year Treasury bond worth 10 billion francs auction to take positions in the relative liquid ($12.11 million) on Wednesday to fund PDM Network Weekly Newsletter on Emerging Markets For information, contact the PDM Network Secretariat at: [email protected] Follow us on Twitter @pdmnet and on our website wwwpublicdebtnet.org 11 infrastructure projects, the central bank said. protect foreign reserves, the government The National Bank of Rwanda said the bond had imposed restrictions on importing some goods a final coupon and yield of 12.200 percent and a three months ago. subscription rate of 222.03 percent. The bond will be listed on the Rwandan bourse on Aug. 29 ($1 = 2.4367 Tunisian dinars) for secondary buyers. (Reporting By Tarek Amara; Editing by Aidan Lewis, The next issue will be a seven-year bond on Larry King) Nov. 22, the bank said. The East African nation (( [email protected] ;)) of 12 million has been issuing Treasury bonds regularly to develop its nascent debt market and to fund much needed infrastructure. EMERGING MARKET

($1 = 825.9100 Rwandan francs) (Reporting by Clement Uwiringiyimana; Editing by Emerging economies await end to ECB Duncan Miriri) largesse with record euro debt (( [email protected] ; +250 784 031935; Reuters Messaging: 21-Aug-2017 Clement.Uwiringiyimana.thomsonreuters.com@reuters •Emerging market euro borrowing hits record .net )) 250 bln euros •ECB trying to avoid repeat of Fed "taper tantrum" in 2013 •ECB taper is "lesser of two evils" Tunisia •Emerging economies' dollar debt much higher Tunisia's currency reserves recover •Euro zone investors hold 400 bln euros of emerging currency debt slightly with World Bank loan By Marc Jones and Sujata Rao 24-Aug-2017 LONDON, Aug 21 (Reuters) - Emerging TUNIS, Aug 24 (Reuters) - Tunisia's foreign economies' debt in euros has shot to record currency reserves have risen slightly to 13.22 highs thanks to European Central Bank billion dinars, benefiting from the World largesse, and yet an approaching end to this Bank's disbursement of a $500 million loan, a generosity won't necessarily inflict the kind of week after they fell to lows not reached for pain that markets once suffered at the hands nearly three decades. of the U.S. Fed. Last week, reserves had fallen to 11.59 billion The ECB's intention to start winding up its 60 dinars ($4.76 billion), enough for just 90 days of billion-euro a month stimulus programme for the imports, which officials and experts said was the euro zone economy has revived bad memories weakest level since 1986. of when the Federal Reserve tried to signal But according to figures posted on the central something similar in 2013. bank's website late on Wednesday, the reserve That led to the 'taper tantrum' when investors has now recovered to 13.22 billion dinars ($5.43 took fright at the prospect that the ultra-cheap billion), equal to 103 days of imports. The dollar funding they had grown used to would reserve is still lower than it was a year ago, taper away. While the ECB will doubtless when it covered 117 days of imports. proceed cautiously with its own tapering Sources told Reuters that the change comes process, the risk is that it could derail an after the World Bank on Wednesday disbursed emerging market (EM) rally. a loan of $500 million to help finance the UBS strategist Manik Narain, however, argues state budget and to support Tunisia's that withdrawing quantitative easing (QE) in the economic reform program. euro zone won't hurt so much as the dollar Ezzedine Saidan, a local economist, said process. "ECB tapering will have an impact but boosting reserves through loans - rather than it's definitely the lesser of the two evils," he exports, remittances or tourism revenues - was said. problematic as it would only increase Tunisia's While governments, companies and debt. consumers in emerging economies have Tunisia's economy has struggled since a 2011 binged on cheap euro borrowing for the past uprising, and the government has struggled to 2-1/2 years, the total remains modest make tough economic reforms that would reduce compared with their dollar debts, Narain public spending, as demanded by international pointed out. lenders. No central bank is finding it easy to withdraw Tourism revenues rose to $613 million between policies that helped to keep Western economies Jan. 1 and Aug. 10, this year, 19 percent higher afloat after the global financial crisis. Investors than the same period in 2016, reflecting a are awaiting word from ECB President Mario recovery in a vital sector crippled two years ago Draghi, who will speak at a central bankers' by attacks on foreign holidaymakers. meeting in the United States this week, on how But the trade deficit widened by 26 percent to he proposes to engineer a gradual end to the era 8.63 billion dinars in the first seven months of of mass bond buying and negative interest rates. 2017, according the State Statistics Institute. The important thing is to avoid a repeat of the In efforts to curb its widening trade deficit and taper tantrum of four years ago. This wiped half

PDM Network Weekly Newsletter on Emerging Markets For information, contact the PDM Network Secretariat at: [email protected] Follow us on Twitter @pdmnet and on our website wwwpublicdebtnet.org 12 a trillion dollars off MSCI's emerging equity Bank of America Merrill Lynch (BAML). index in three months, raised countries' But this is little changed from December 2013. borrowing costs by an average 1 percentage David Hauner, head of emerging markets cross- point and pushed some emerging currencies asset strategy at BAML, says European investors down by as much as 20 percent against the do not appear to have moved heavily into dollar. emerging debt during the ECB's quantitative Now it is the ECB's turn. Draghi will deliver no easing (QE) years. new policy messages during this week's In fact, most moves happened during the Fed's conference at Jackson Hole, sources say. own bond-buying from 2009 onwards and when However, expectations are high that he will the ECB started its earlier programme of tackle the issue at one of the ECB's policy showering banks with unlimited, ultra-cheap meetings next month or in October.. funding. Under Draghi, the ECB has pumped more than A quarter of this money was invested in Polish, 2 trillion euros ($2.35 trillion) into the global Hungarian and Czech debt, the data shows. financial system. His first hint in June that Turkey accounts for another 42 billion euros, tapering might be coming pushed the MSCI's while Brazil and Mexico had 39 billion and 74 emerging equity index down 2 percent over billion respectively. the following week. Analysis from the Institute of International On currency markets, Turkey's lira and South Finance supports that view. It estimates Africa's rand fell sharply, not only against a $200-$300 billion flowed to emerging stocks broadly stronger euro but also the dollar. and bonds annually during the peak years of Investors were unsettled by the prospect of the Fed's bond buying in 2012-2013. But by higher euro zone bond yields dragging up U.S. last year, when the ECB's QE peaked, flows borrowing costs in their wake. declined to $100 billion. STELLAR GAINS The view that emerging market investing Emerging markets have achieved stellar gains remains a dollar story is supported by a this year but investors using the euro have Deutsche Bank study of an equally weighted largely missed out due to the currency euro-dollar basket versus 12 emerging conversion. The dollar has fallen 5 percent currencies. versus a basket of emerging currencies This showed that emerging currencies tended to tracked by UBS, but the euro is up 6 percent. fall an average 0.6 percent in months when the Only four emerging currencies - those of dollar strengthened, whereas they rose by 0.4 Poland, the Czech Republic, Hungary and percent against the basket during times of euro Mexico - have strengthened against the euro strength. this year "These results suggest that if external conditions Developing economies are more exposed to the remain relatively benign, the current emerging euro than any other time in history. Their euro- currency appreciation cycle has more room to denominated debt - including bonds and bank run," Deutsche's Gautam Kalani added. loans - has ballooned by almost 100 billion euros At BAML, Hauner says euro-based investors earn over the last seven years to around 250 billion, a better yield premium by investing in emerging according to data from the Bank for markets than those using the dollar. International Settlements. "Unless dollar strength is extreme, euro-based In Mexico alone, debt in euros has quadrupled investors do better in EM than dollar-based since 2010 to over 42 billion euros: But even then overall emerging borrowers' euro debt is investors, as euro/dollar removes much of the dwarfed by the $1.7 trillion they owe in volatility in emerging currencies," he said. "In a dollars. So they are much more susceptible to nutshell we are not very concerned about this." movements in U.S. government bond yields than those on the euro zone benchmark, German (Reporting by Marc Jones and Sujata Rao; editing by David Stamp) Bunds. (( [email protected] ; +44)(0)( 207 "The bulk of EM external debt is in dollars rather 542 9033; Reuters Messaging: than euro and the EM corporate sector [email protected] Twitter gravitates towards dollar funding... so a 50 https://twitter.com/marcjonesrtrs)) basis-point move in Treasuries matters a lot more than 50 bps move in Bunds, other things being equal." Caution may be creeping in to LIMITED HOLDINGS emerging markets European exposure to emerging stocks and bonds also lags the United States. UBS research 24-Aug-2017 suggests more than 60 percent of EM carry By Marc Jones trades - borrowings in cheap developed LONDON, Aug 24 (Reuters) - Investor caution economy currencies invested in higher-yielding may be starting to creep into emerging emerging currencies - are denominated in markets following a blistering rally so far this dollars, Narain said. year, the Institute of International Finance (IIF) said on Thursday. As of June 2016, euro zone investors held about A combination of increasing global growth, low 407 billion euros' worth of emerging currency- interest rates and a weak dollar have fuelled the denominated debt, according to calculations by surge in emerging economy currencies and PDM Network Weekly Newsletter on Emerging Markets For information, contact the PDM Network Secretariat at: [email protected] Follow us on Twitter @pdmnet and on our website wwwpublicdebtnet.org 13 assets, but the capital flow tracker pointed to possible signs of a pause. Referencing EPFR data, the IIF said the first GLOBAL cumulative withdrawal of cash from emerging market funds since January occurred last week. The outflow was mainly stocks-driven though EM All eyes on central banks as primary bond investors had also turned more neutral. flow abates "While flows to emerging markets have been resilient over the past few weeks, our investor 24-Aug-2017 sentiment metrics suggest a more cautious LONDON, Aug 24 (IFR) - At long last the great tone," the IFF report said. and the good of the central banking world are "Our EM risk appetite metric suggests that gathering at Jackson Hole and while the investors continue to take on credit risk in potential for any big reveal has been toned search for yield, but have turned slightly down over recent weeks, market participants negative on EM currency risk despite recent U.S. will nonetheless be watching proceedings closely. dollar weakness." With supply frontloaded ahead of the meeting, it Bank of America Merrill Lynch painted a similar came as little surprise to see no new issuance picture in a report last week. It said emerging surface on Thursday though the pipeline will market stocks suffered their first outflows in 22 quickly be filling up with deals for the coming weeks, losing $1.6 billion as investors eased weeks. away from riskier assets. "There's a Nordic sovereign looking at the MSCI's benchmark emerging equities index saw market, Spain always has the ability to turn its biggest weekly fall since December, as nerves around and do a trade quickly and KfW might around U.S. and North Korea tensions hit Asian look at euros now they've done dollars," a markets such as South Korea . banker said. "And of course EFSF will be out with Emerging market debt funds suffered their first outflows in 29 weeks, BAML added -- something." albeit a modest $100 million -- while $2.3 Finland announced late June that it would sell a billion was pulled from high-yield bond funds, euro benchmark, likely a 10-year, in the third the biggest outflows in almost six months. quarter and would look at a dollar deal too. Investors are not expected to jump to definitive Austria is the other sovereign tipped in euros. conclusions however. The €4.5bn it has raised through syndications in Trading in August and early September tends to 2017 is short of the €10bn printed in 2016 via be thin due to the summer holiday exodus in the same method. U.S. and European markets in particular. But it And despite the lack of fireworks around this means the flows will be scrutinised as volumes week's US dollar trades, issuance is expected to start to pick up again. continue with IADB, ADB and EIB among The EPFR data shows that international investors potential candidates looking to bring deals. have piled around $122 billion into emerging "Markets are open but the Draghi speech is one market-focused funds this year. Euro area data point to be cognisant of," another syndicate investors have provided $77.5 billion of that, banker said. "We will see late on Friday what he $62.5 billion of which has gone into EM bond says and how the market adjusts. It will have funds. some sort of impact." That euro zone dominance has been maintained in recent weeks by a more dovish tone from the [email protected] European Central Bank. In contrast, with EM corporate profitability approaching robust 2010 levels, U.S. investors have dominated equity fund flows. Since mid- July, U.S. flows to EM equities reached nearly $5 billion, over 60 percent of the total inflow, the IIF said. All the countries in the IIF's sample group with the exception of Colombia have seen positive bond fund inflows since mid-July. Among EM equity funds, flows into Colombia were particularly strong as where those into Korea and Mexico, while Russia and Saudi Arabia saw net outflows. http://fingfx.thomsonreuters.com/gfx/mkt/3/61/61/E M%202017.PNG (Reporting by Marc Jones; editing by John Stonestreet) (( [email protected] ; +44)(0)( 207 542 9033; Reuters Messaging: [email protected] Twitter https://twitter.com/marcjonesrtrs) ) PDM Network Weekly Newsletter on Emerging Markets For information, contact the PDM Network Secretariat at: [email protected] Follow us on Twitter @pdmnet and on our website wwwpublicdebtnet.org 14