CONTEXTO
ECONÓMICO Y PERSPECTIVAS P A R A
L A T A M
Y
C R
2 0 2 4
XP Macro Outlook: América Latina Bajo crecimiento y política económica más limitada Andrés Pardo A. Director y Jefe de Análisis Macroeconómico para América Latina XP Investments
October 2023
XP RESEARCH
1
Contexto global Tasas de interés globales más altas por más tiempo XP RESEARCH
2
Principales mensajes
October 2023
• Los estímulos que los gobiernos y los bancos centrales del mundo les dieron a sus respectivas economías durante la pandemia , y especialmente a los consumidores, generaron mucha más actividad de la que se esperaba. La mala noticia es que esos estímulos también contribuyeron a generar una burbuja inflacionaria muy fuerte. • La inflación está disminuyendo en forma relevante en la mayoría de los países del mundo, pero es demasiado temprano para cantar victoria. Los riesgos de que la inflación se torne más “pegajosa” no es despreciable. • La gran mayoría de los modelos económicos usados para tratar de pronosticar recesiones siguen arrojando un alto riesgo de que la economía de EEUU entre en un decrecimiento secuencial en los trimestres venideros. • Uno de los activos en el mundo que va a determinar si las cosas avanzan bien o mal para los mercados y para la economía en general es el Bono del Tesoro de EEUU a 10 años. • Las elevadas tasas de interés a nivel global afectarán el crecimiento económico de América Latina, además de reducir notablemente el espacio para medidas de estímulo fiscal y para atender las mayores demandas por gasto social y de inversión
XP RESEARCH
3
Las tasas de interés de los bancos centrales en países desarrollados aumentaron rápidamente y a niveles excepcionalmente elevados, pero creemos que los ciclos alcistas ya habrían terminado
October 2023
The global economy is expected to weaken amid tighter financial conditions in developed economies Annual Policy Rate (%) 6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0
Source: Bloomberg, XP
USA
Eurozone
UK
XP RESEARCH
4
La inflación, y especialment la medida subyacente, permanece inusualmente elevada en países avanzados
October 2023
Inflation in developed economies lingers above target
Inflation in developed economies lingers above target
Headline CPI (12-month % change)
Core CPI (12-month % change)
12
12
10
10
8
8
6
6
4
4
2
2
0
0
-2
-2
Source: Bloomberg, XP
USA
Eurozone
UK
Target
Source: Bloomberg, XP
USA
Eurozone
UK
Target
XP RESEARCH
5
A pesar de la elevada inflación, esperamos que siga cayendo el próximo año: debilitamiento económico y menores presiones de costos
October 2023
Global economic growth is expected to reamain weak
Material drop in producer prices in developed economies
GDP growth observed and projected (%) 6
Producer price index (percentage change, Y/Y) 25
50
5
20
40
4
15
30
3
10
20
5
10
0
0
-5
-10
-10 Nov-19
-20
2 1 0
World
Advanced
US
Source: IMF WEO (Oct-23), XP
Euro Area
EM Asia
2022
EM Europe
LatAm
2023 (p)
Middle Sub-Saharan Africa East/Central Asia
2024 (p)
May-20
Source: Bloomberg, XP
Nov-20
May-21
US
Nov-21
UK
May-22
Nov-22
May-23
Euro Zone (right axis)
XP RESEARCH
6
Sin embargo, hasta el momento el crecimiento económico en EEUU ha sido más resilitente de lo esperado
October 2023
Inflation has surprised to the downside while activity to the upside in the United States Citi Economic Surprise Index (above 0, upside; below 0, downside) 100
50
0
-50
-100 Jan-21
May-21
Source: Bloomberg, XP
Sep-21
Jan-22
May-22
Inflation
Sep-22
Jan-23
May-23
Sep-23
Economic activity
XP RESEARCH
7
La inflación continúa por encima de la meta, pero está cediendo, aunque los riesgos de persistencia siguen siendo altos (petróleo, salarios, actividad económica resiliente).
October 2023
United States core inflation
Core inflation in the US remains above target
CPI and 3 month seasonally adjusted annual return 10%
Core PCE Deflator 8.0%
8% 6.0%
6% 4%
4.0%
2%
2.0% Target = 2%
0.0%
-2%
-2.0%
Source: Bloomberg, XP
0%
-4%
Core PCE Prices, y/y
3M SAAR
Source: BLS, BBG, XP
3M SAAR
Core CPI, y/y
XP RESEARCH
8
Las presiones para que la política monetaria en EEUU sea más restrictiva se han reducido, pero aún se requiere mantener tasas elevadas por tiempo prolongado
October 2023
XP RESEARCH
9
La inflación en EEUU podría ceder más rápido de lo esperado pues los componentes distintos a los arrendamientos muestran una inflación contenida
October 2023
United States core services ex-rents of shelter inflation
Shelter is the main driver of US inflation
United States core goods inflation
Consumer price index 12%
Consumer price index 10%
Consumer price index 30%
9%
25%
8%
20%
6%
6%
15%
4%
10%
3% 0%
5%
Source: BLS, BBG, XP
3M SAAR
Y/Y
Source: BLS, Bloomberg, XP
Y/Y
Source: BLS, BBG, XP
3M SAAR
Y/Y
XP RESEARCH
10
Jul-23
Apr-23
Oct-22
Jan-23
Jul-22
Apr-22
Jan-22
Jul-21
Oct-21
Apr-21
Jan-21
Jul-20
Oct-20
Apr-20
Jan-20
Jul-19
Oct-19
Apr-19
Jan-19
Jul-18
Oct-18
Apr-18
Jan-18
Jul-23
Apr-23
Jan-23
Jul-22
Oct-22
Apr-22
Jan-22
Jul-21
3M SAAR
Oct-21
Apr-21
Jan-21
Jul-20
Oct-20
Apr-20
Oct-19
Jan-20
Jul-19
Apr-19
Jan-19
Jul-18
-5% Oct-18
0% Apr-18
-6%
0% Jan-18
2%
Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Apr-23 Jul-23
-3%
La inflación de arrendamientos caerá significativamente en el próximo año, pero tiene rezagos por la forma como se calcula dentro del IPC
October 2023
Shelter is the main driver of US inflation Consumer price index 10% 8%
6% 4% 2%
Source: BLS, Bloomberg, XP
3M SAAR
Jul-23
Apr-23
Jan-23
Oct-22
Jul-22
Apr-22
Jan-22
Oct-21
Jul-21
Apr-21
Jan-21
Oct-20
Jul-20
Apr-20
Jan-20
Oct-19
Jul-19
Apr-19
Jan-19
Oct-18
Jul-18
Apr-18
Jan-18
0%
Y/Y
Los arrendamientos y hoteles, que pesan 42% en la inflación subyacente, están siendo los principales determinantes de la elevada inflación actual en EEUU, pero esperamos una fuerte tendencia bajista en los próximos trimestres. Si el modelo de la Fed de San Francisco resulta ser más adecuado, la inflación subyacente bajaría a 1.4% en 2024 vs nuestro modelo de 2.4%. XP RESEARCH
11
Adicionalmente, varios indicadores sugieren un importante debilitamiento de la economía de EEUU y que el riesgo de una recesión es alto
The inverted yield curve implies high recession probability in the United States
October 2023
US leading indicators point to high recession probability US Leading Economic Indicator, % YoY (recession in grey)
2-10 Treasury yield spread (%)
20
1
3.0
1 1
10
2.0
1 1
1.0
0
1 0
0.0
0
-10
0
-1.0
0 2022
2020
2018
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
Source: BBG, XP
-20
0
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023
0.00
-2.0
Source: Bloomberg, XP
XP RESEARCH
12
El muy alto nivel de restricción de la política monetaria y de las condiciones financieras en EEUU, que se intensificaron en los meses recientes, también jugarán un rol significativo en la desaceleración económica Real interest rates in the US may be higher going forward
October 2023
Interest rates increased significantly in the US
Real ex-ante interest rates (%): 10Y UST yield - 10Y breakeven inflation
US 10Y Treasury Bond Yield, %
2.5
5.0 Beginning of the Fed´s tightening cycle
2.0
4.5
1.5
4.0
1.0
3.5 3.0
0.5
2.5
0.0
2.0
-0.5
1.5
-1.0
1.0
-1.5
0.5 0.0
Source: FRED, Fed, XP
Real rates
Neutral (pre-pandemic)
Possible new neutral
US yield curve continues to shift upwards
Source: BBG, XP
US Treasury yield per tenor 6.0% 5.5% 5.0% 5.0%
4.5%
4.7% 4.8%
4.0%
4.2% 4.1%
4.9%
4.7% 4.4%
3.8%
3.5%
3.7%
4.3% 4.1% 3.8% 3.7%
3.6%
3.0% 0
2Y
5Y207Y
Source: Bloomberg, XP
10Y 40
60 20Y
6 months ago
Two month ago
80
30Y 100 Current
XP RESEARCH
13
La actividad económica en Europa sí se ha resentido y refuerza la tésis de un débil crecimiento global en 2024
October 2023
Activity indicators in contractionary territory in the Eurozone
Activity indicators in contractionary territory in the Germany
PMI (above 50, expansion; below 50, contraction)
PMI (above 50, expansion; below 50, contraction)
70
70
65
65
60
60
55
55
50
50
45
45
40
40
35
35
Source: Bloomberg, XP
Manufacturing PMI
Services PMI
Source: Bloomberg, XP
Manufacturing PMI
Services PMI
XP RESEARCH
14
La economía China, que es un socio comercial clave para América Latina, también ha mostrado un crecimiento más débil después de la reapertura a comienzos de este año
October 2023
Growth in China continues to disappoint Markit PMI (above 50, expansion, below 50, contraction) 60 55
50 45
40 35 Jan-21
May-21
Source: Bloomberg, XP
Sep-21
Jan-22
May-22
Sep-22
Manufacturing
Jan-23 Services
May-23
Sep-23
Composite
XP RESEARCH
15
La desaceleración en China también puede afectar a la baja la dinámica de los precios de materias primas que exporta América Latina, mientras que la reciente escalada del petróleo pone en riesgo el proceso de desinflación global Commodity prices stabilizing at (not excessively) high levels
Oil prices increased again
CRB all commodities Index (1967=100)
Brent oil (USD per barrel)
650
October 2023
140 120
550
100 450
80 60
350
40 250
150 2000
20
2002
2004
Fonte: Bloomberg, XP
2006
2008
2010
2012
2014
2016
2018
2020
2022
0 2015
2016
2017
2018
2019
2020
2021
2022
2023
Souce: BBG, XP
XP RESEARCH
16
América Latina Débil crecimiento global y menos espacio para la política económica XP RESEARCH
17
La inflación también está cayendo de manera importante en América Latina y esa tendencia debería continuar en 2024
October 2023
Material drop in producer price inflation in Latam Producer price index (percentage change, Y/Y) 40
10.0
30
7.5
20
5.0
10
2.5
0
0.0
-10
-2.5
Source: Bloomberg, XP
Colombia
Chile
Brazil
Mexico (RHS)
XP RESEARCH
18
La caída de la inflación y la respuesta anticipada de los bancos centrales está permitiendo que los recortes de tasas comiencen más temprano, pero los riesgos se sesgan hacia disminuciones más lentas
October 2023
Rate cut expectations in Latin America Annual policy rate (%) and XP forecasts (dotted line) 15 12 9 6 3 0
Source: Bloomberg, XP
Brazil
Chile
Colombia
Mexico
XP RESEARCH
19
Aún así, la política monetaria en la región está en niveles altamente restrictivos lo que implica que las tasas de interés elevadas seguirán pesando sobre la actividad económica en el corto plazo
October 2023
Monetary policy is significantly restrictive in Latam Ex-ante monetary policy rate (%) 12 10 8 6
4 2
0 -2 Brazil
Chile
Colombia Mexico
Source: National Central Bank, XP
Ex-post
Peru
Uruguay
Ex-ante
Costa Rica
DomRep
10yr avg. (ex-ante)
XP RESEARCH
20
La región tiene que enfrentar tasas de interés más altas por más tiempo, especialmente por las alzas récord de tasas globales, pero el accionar de los bancos centrales evitaron subidas mayores al contener las primas de riesgo
October 2023
... but CDS spreads are not excessively above normal standards 5y CDS spreads (bps)
Interest rates at high levels in Emerging markets... Bloomberg EM USD Aggregate Yield (%) 9
550 500
8
450 400
7
350
300
6
250
200
5
150 100
4 3 2013
50 0 2013
2014
2015
Source: Bloomberg, XP
2016
2017
2018
2019
2020
2021
2022
2023
2014
2015
Source: Bloomberg, XP
2016
2017
Mexico
2018
2019
Colombia
2020
Chile
2021
2022
Brazil
2023
Peru
XP RESEARCH
21
Igualmente, el correcto accionar de los bancos centrales de la región está evitando un mayor debilitamiento de sus monedas, que también hubiera llevado a tasas de interés más elevadas
October 2023
DXY dollar index
LatAm currencies gave back a good portion of their positive performance in 1H23, but levels are similar to pre-pandemic ones
114
Exchange rate index, Feb 2020=100
The USD has strengthened again and approaching multi-year highs
130 109 104
125
120 115
99 94
110 105 100
89
95
Source: Bloomberg, XP
Source: BBG, XP
LACI Index
XP RESEARCH
22
De todas maneras, los altos niveles de tasas de interés recientes, que continuarán en 2024, reducen el espacio fiscal debido a la elevada deuda que se ha acumulado en los últimos años y que está corrigiendo lentamente
October 2023
Hight debt levels in Latin America Debt to GDP ratio (%) - Latin America and the Caribbean 80 70
60 50 40 30 20 10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 (p) 2024 (p)
0
Source: IMF, XP Source
XP RESEARCH
23
Los déficits fiscales de la región están volviendo a ampliarse en el corto plazo debido a una caída en los ingresos, lo que impide el necesario ajuste a la baja de la deuda pública Government debt in Latam countries
Government revenue in Latin America
Fiscal measures in 16 countries (% of GDP)
% of GDP - 16 countries 24.3
25 20.0 19.9
20.6 21.1 21.1 21.2 21.3 21.1 21.0 21.2
22.9
21.6 21.4
20 15 10 5
18.0 18.2 18.7 18.5 18.3 18.3 18.1 18.1 18.3 18.3 17.6 18.8
19.3 18.4
-0.3 0.1 -0.2 -0.8 -0.9 -0.8 -1.0 -0.7 -0.2 -0.3
0.3 -0.4
-1.6
-3.2 -3.0 -2.7 -2.9
-4.1
-2.3 -3.0
20.0
5
18.8
19.3
3.1
3.1
2.6
14.5
15.7
16.2
15.8
2020
2021
2022
2023 (p)
18.3
17.6
3.1
3.0
15.2
2019
15.0
18.4
10.0
-5 -10
2023 (p)
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
Source: ECLAC, XP
Overall Balance (RHS) Total expenditure
10
5.0
-6.7
0
25.0
0
-4.1 -2.0 -1.7 -1.9 -2.6 -2.8 -2.9
15
October 2023
Total income Primary Balance (RHS)
0.0 Other revenue
Tax revenue
Total revenue
Source: ECLAC, XP
XP RESEARCH
24
Los altos niveles de deuda y de tasas de interés implican mayores costos financieros y menos espacio fiscal para estimular las economías y para atender las mayores demandas por gasto social y de inversión Rising interest payments in Latin America
Rising interest payments in Latin America
(percentage of GDP)
(percentage of tax revenue)
6
35
5
4.2
4.3
4.6
30
4.9
21
4
2.8
3
2
1
1.2
1.6
1.9 1.8
1.9
2.1
0.2
3
20
3.6
2.2 2.1
1.8
1
2.9
16
2.6 15
2.5 1.9
1.9
1.7
2.6 2.0
8
10
5
1.7
0.6
Source: ECLAC, XP
9
11
0
2022
2012
3
Source: ECLAC, XP
21
12
23
25
16
21 14
15
17
18
18 15
11
7
6
1.0
17
23
13
10
9
5
1.1
30
30
25
0
October 2023
2
2022
2012
XP RESEARCH
25
La corrección de los déficits de la cuenta corriente también se frenará el próximo año, lo cual también impide una mayor reducción de los elevados niveles de endeudamiento de la región
October 2023
XP RESEARCH
26
La región sufre de bajos niveles de inversión y el aumento en los costos financieros impedirá que este problema comience a corregirse en los próximos años
October 2023
Investment at low levels in Latin America Investment to GDP ratio (%)
45 40 35 30 25 20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
15
Source: IMF, XP
World EM EM Europe Middle East and Central Asia
Advanced economies EM Asia LatAm Sub-Saharan Africa
XP RESEARCH
27
Los bajos niveles de inversión están pesando sobre el crecimiento económico de largo plazo y esta tendencia seguirá siendo una preocupación clave en los próximos años
October 2023
XP RESEARCH
28
La región también sufre un problema estructural asociado a los bajos niveles de productividad laboral
October 2023
Weak productivity growth in Latin America Output per worker index (USD at PPP, 1991=100) 250
220 190 160 130 100 70 1991
1994
Source: ILO, XP
1997
2000
2003
2006
Latam Asia and the Pacific Africa
2009
2012
2015
2018
2021
Northern America Western Europe Eastern Europe
XP RESEARCH
29
El aumento en los costos financieros también limitará el gasto requerido en inversión social y de capital humano, que son necesarios para atacar los graves problemas de productividad
October 2023
Rise in interest payments limit spending on priority areas Central government interest payments relative to spending in each area (%) - 21 countries in Latin America and the Caribbean 200
185
160
120
76 80
63
62
64
47
46
54
40
0
Education Source: ECLAC, XP
Health
Social protection
Public investment
2012
2021 XP RESEARCH
30
La incertidumbre global ha aumentado significativamente en los últimos años y se mantienen elevada, lo que también pesará sobre el desempeño económico de la región, junto con los rezagos en productividad, y pone en duda si podrá aprovechar el near-shoring y friend-shoring
October 2023
Lagging in competitiveness Rank position, Latam countries in yellow
High levels of uncertainty in developed economies World Uncertainty Index (WUI) 50,000 40,000 30,000
20,000 10,000
1990 1991 1993 1994 1995 1997 1998 2000 2001 2002 2004 2005 2007 2008 2010 2011 2012 2014 2015 2017 2018 2019 2021 2022
0
Source: WUI, XP
Global (simple average)
Emerging economies
Venezuela Argentina South Africa Brazil Colombia Mexico Peru Turkey Poland Philippines Chile Indonesia Hungary India Thailand Malaysia Korea Rep. Saudi Arabia United Kingdom Estonia Belgium Austria Australia Qatar China Taiwan Source: IMD, XP
63 62 60 59
57 55 54 52 50 48 45 44 39
37 33 32 27 24 23 22 21 20 19 18 17 7
0
10
20
30
40
50
60
70
XP RESEARCH
31
XP RESEARCH
32
Costa Rica and Latin America’s Sovereign Ratings & Trends Lisa M. Schineller, Ph.d. Managing Director & Lead Analyst Sovereign & International Public Finance Ratings
Copyright © 2022 by S&P Global. All rights reserved.
“Costa Rica’s & Latin America’s Sovereign Credit Ratings & Trends” BAC Credomatic Private Banking Annual Conference New York & San Jose
October 10, 2023
2
A Sovereign Rating •
Reflects the sovereign government’s ability & willingness to service its debt in full and on time
•
Is a forward looking estimate of default probability
•
Is not a recommendation to buy or sell a security or a prediction of the stability or volatility of a security price
•
It’s not an endorsement or a condemnation of a set of governmental policies, except to the extent that they have an impact on ability to service debt
•
Addresses the relative credit standing of governments vs other issuers globally
•
Is not a “Country Rating”
3
Sovereign Ratings Global Trends: More Upgrades, but More Negative Outlooks
September 2023 4
Latam Ratings Lead Downside Risks in EM Sovereigns
July 2023 5
Global Outlook Distribution by Region
Source: Global Sovereign Rating Trends Midyear 2023: Fragile Stability. July 5, 2023 6
Sovereign Outlook Changes during 2023
Source: Global Sovereign Rating Trends Midyear 2023: Fragile Stability. July 5, 2023 7
Global Outlook Distribution by Region
Source: Global Sovereign Rating Trends Midyear 2023: Fragile Stability. July 5, 2023 8
Hit to the Region’s Creditworthiness During 2020
9
Various Challenges for the Region Looking Ahead U.S. Recession risk, Banking Sector pressures, Fed Policy, Geopolitical Uncertainty, Inflation inertia and risks? Political cycles may generate policy swings, less predictability 2021 Presidential elections Ecuador Peru Chile 2022: Presidential elections Costa Rica, Colombia, Brazil; Chile Constituent Assembly 2023: Presidential elections Argentina, Guatemala, Paraguay; Chile CA take 2; Ecuador 2024: Presidential elections DR, El Salvador, Mexico, Panama, Uruguay --- U.S. [[2026: Presidential Peru]]
Social tensions -- lingering energy and food inflation, higher poverty, informality & underemployment Less fiscal space amid higher debt burdens: level and cost of debt Subdued trend growth, low investment & productivity, and reform fatigue 10
Latin America: S&P’s Economic Forecasts
Economic Outlook Emerging Markets Q4 2023: The Lagged Effects Of Monetary Policy Will Test Resilience, Sep 25, 2023; S&P Global Ratings
11
Sovereign Ratings: Latin America and Caribbean Chile A/A+ Aruba BBB/BBB Peru BBB/BBB+ Turks and Caicos BBB+/BBB+ Mexico BBB/BBB+ Panama BBB/BBB Uruguay BBB+/BBB+ Colombia BB+/BBBCuracao BBB-/BBBMontserrat BBB-/BBBTrinidad & Tobago BBB-/BBB-
Paraguay BB/BB Bahamas B+/B+ Brazil BB-/BBDominican Republic BB/BB Guatemala BB/BB Honduras BB-/BBBolivia B+/B+ Jamaica B+/B+
1. ECONOMIC OUTLOOK
Outlook/CreditWatch: Stable, Positive, Negative
Costa Rica B+/B+ Nicaragua B/B Barbados B-/BBelize B-/BEcuador B-/BEl Salvador CCC+/CCC+ Nicaragua B/B Argentina CCC-/CCCSuriname SD/SD
Source: Ratings as of October 5, 2023 as published on S&P Global’s Global Credit Portal.
Framework For Sovereign Ratings
Source: S&P Global Ratings Services “Sovereign Rating Methodology” as of December 18, 2017 as published on the Global Credit Portal®.
13
Mexico’s ‘BBB’ Sovereign Rating •
Outlook revised to stable July 6, 2022
•
Downgrade & Negative Outlook March 26, 2020
•
BBB+ Negative Outlook March 1, 2019
‘BBB’ Rating: •
Committment to stable macroeconomic policy framework, proactive debt management, track record of fiscal adjustment in an economic downturn
•
Weak trend growth amid poor private sector sentiment and low investment
•
Credible monetary, exchange rate, and trade oriented policies
•
Solid external position, with low current account deficits and a floating peso
•
Moderate general government fiscal burden, excluding Pemex
Fiscal trajectory, considering potential contingent liabiltiies associated PEMEX and limited fiscal buffers, and a business climate that support growths and near-shoring prospects key for future ratings actions
14
Mexico’s Ratings Score Snapshot
15
Brazil’s ‘BB-’ Sovereign Rating •
Outlook revised to positive June 2023
•
Outlook revised to stable April 2020, after revision to positive December 2019
•
Followed downgrade to BB-/Stable in January 2018 on weaker institutional assessment
•
Followed downgrade to BB with a Negative outlook in Feb 2016
•
Followed downgrades September 2015, March 2014, initial negative outlook June 2013
‘BB-’ Rating: •
Recurrent resistance from political class across branches of government for timely, structural corrective fiscal measures
•
Growth prospects below that of peers
•
Large fiscal deficits, spending rigidities, high debt
•
That said, other pillars of macroeconomic policies in place – inflation targeting track record
•
External vulnerabilities generally in check
The pace of growth, fiscal policy correction, debate about CB, and prospects for a fiscal and tax reforms to inform rating dynamics Postive outlook considers pragmatism in fiscal policy making in current administration
16
Brazil Ratings Score Snapshot
17
Argentina’s ‘CCC-’ Sovereign Rating •
FC Ratings lowered to CCC- March 29, 2023 on payment vulnerabilities ; various LC defaults in 2023 on distressed debt exchanges; Outlook Negative
•
FC Ratings raised on September 7, 2020, as global- and local- law FC defaults cured •
May 2020 first global bond set to D as grace period expires
•
April 2020 foreign currency ICR lowered to SD on local law decree
•
January 2020 local currency ratings lowered to SD on distressed debt exchange
•
December 2019 FC rating in & out of default on unilateral extension of ST debt by Fernandez government
•
Long-term ratings of ‘CCC- /Negative’ on Aug. 30th ; FC/LC ICR Ratings lowered to ‘SD’ August 29th after the Macri government unilaterally extended the maturity of all short-term paper.
•
Lowered to ‘B-/Negative’ August 16 after PASO elections
•
Lowered to ‘B/Stable’ November 2018 amid financial market stresses and challenges and support associated with 57$ billion IMF Stand-By Arrangement
‘CCC-’ Rating: •
Despite $100 billion commercial debt restructuring in 2020,challenging local debt profile of $85 billion due in 2023 and large IMF payments
•
Significant macroeconomic imbalances and challenges: high inflation, low growth, large fiscal financing needs, ongoing pressure in the foreign exchange markets, low international reserves.
•
Weak debt culture, growth lower than peers, weak external profile with limited financing options.
•
Absence of confidence in peso underpins dollarization, undermines local capital markets and heightens vulnerability of debt profile
2023 national elections key to future ratings upside – as EFF and ad-hoc pólices have failed to stabilize pronounced macro-imbalances Private & Confidential
18
Argentina Rating Score Snapshot
Economic Assessment: GDP per capita – US$ 25.00
20.00
15.00
10.00
5.00
0.00 Peru
Panama
Mexico 2011-2021
Colombia 2022
2023
Chile
Brazil
Argentina
2024 Private & Confidential
20
Economic Assessment: Real GDP growth (%) 12.00
10.00
8.00
6.00
4.00
2.00
0.00 Peru
Panama
Mexico
Colombia
Chile
Brazil
Argentina
(2.00)
(4.00)
(6.00) 2011-2021
2022
2023
2024
Private & Confidential
21
External Assessment: Narrow net ext. debt / CAR (%) 200.00 180.00 160.00 140.00 120.00 100.00 80.00 60.00 40.00 20.00 0.00 Peru
Panama
Mexico
Colombia
Chile
Brazil
Argentina
(20.00) 2011-2021
2022
2023
2024
Private & Confidential
22
External Assessment: Gross ext. fin. needs/CAR + use. res.(%) 200.00
180.00
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00 Peru
Panama
Mexico 2011-2021
Colombia 2022
2023
Chile
Brazil
Argentina
2024
Private & Confidential
23
Fiscal Assessment: Gen. Government balance / GDP (%) 2.00
1.00
0.00
(1.00)
(2.00)
(3.00)
(4.00)
(5.00)
(6.00)
(7.00)
(8.00) Peru
Panama
Mexico
Colombia 2011-2021
2022
2023
Chile
Brazil
Argentina
2024
Private & Confidential
24
Fiscal Assessment: Net Gen. Government debt / GDP (%) 100.00
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00 Panama
Mexico
Colombia 2011-2021
Chile 2022
2023
Brazil
Argentina
2024
Private & Confidential
25
Fiscal Assessment: Gen. Govt. interest / GG revenues (%) 20.00
18.00
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00 Peru
Panama
Mexico 2011-2021
Colombia 2022
2023
Chile
Brazil
Argentina
2024
Private & Confidential
26
Costa Rica’s ‘B+’ Sovereign Rating Upgrade February 2023 to ‘B+’, Stable Outlook Outlook revised to Stable from Negative on ‘B’ Rating March 2022
Previously, Negative trajectory since 2016 with Downgrade June 2020 to ‘B’/Negative: •
December 2018 ‘B+’/Negative
•
February 2016 ‘BB-’/ Negative
‘BB’/Stable Rating Assigned 1997, Positive/Stable/Negative outlooks through early 2016 ‘B+’ Rating: •
Implementation of 2018 fiscal reform gained traction, generated primary surplus in 2022 --- looking better expected in 2023 thus far
•
Progress passing / implementing measures under EFF – will continue?
•
Multi-year borrowing authority to tap global capital markets
•
Fragmented National Assembly and legislative procedures have held back timely corrective policy measures
•
Growth story benefiting from export dynamism – nearshoring?
•
Low inflation and greater exchange rate fluctuation 27
Costa Rica’s Stable Outlook Upside scenario Conversely, we could raise the ratings over the next 12 months if the government and the Legislative Assembly maintain fiscal measures that have supported deficit reduction. Success thus far has stemmed from implementation of the 2018 reform. The public employment reform due to come into effect this year is expected to play a role. Such steps would likely underpin investor confidence, and sustain access to the local market and external (official and capital market) borrowing. In the complex global climate, Costa Rica appears to be benefiting from nearshoring or friend-shoring. Strength in foreign direct investment (FDI) and exports, associated with special trade zones and tourism, could reduce the country's external vulnerability, supporting growth and fiscal performance. These factors could lead to an upgrade.
Downside scenario We could lower the ratings over the next 12 months if policy reversals or fiscal implementation setbacks threaten smooth debt management. While the government's funding needs have declined as deficits have come down, they remain high at around 9.5% of GDP this year and next. Success in tapping global capital markets on favorable terms this year would likely be predicated on signals of continued fiscal commitment and compliance with IMF reviews. If policy setbacks occur, recourse to the central bank or other unconventional financing could cause us to view the country's institutional framework and ability to support public finances less favorably--despite widespread checks and balances and a solid democratic tradition--and lead us to lower the ratings.
28
Costa Rica Ratings Score Snapshot
29
Costa Rica Ratings Score Snapshot
30
Costa Rica – External Profile Current account balance / GDP (%) 0.00
(1.00) (2.00) (3.00) (4.00) (5.00) (6.00) (7.00) (8.00) (9.00) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Narrow net ext. debt / CAR (%) 50.00 45.00 40.00 35.00 30.00 25.00
20.00 15.00 10.00 5.00 0.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
31
Costa Rica – Fiscal Profile GG balance / GDP (%) 4.00 2.00 0.00 (2.00) (4.00)
(6.00) (8.00) (10.00) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Net GG debt / GDP (%) 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
32
Institutional Assessment Our analysis focuses on: • The effectiveness, stability, and predictability of policymaking and political institutions • The transparency and accountability of institutions, data, and processes • The payment culture • External security risks • The impact of external organizations on policy settings
33
Costa Rica’s Institutional Assessment • Longstanding, solid democracy with smooth transition process • Checks and balances ➢ Active judiciary, Attorney General, Comptroller General
• Low levels of corruption • Accession to OECD underscores institutional strengths • Absence of social conflict seen in some regional peers • Proactive containment of COVID • Coalition government amid fragmented Congress underscores challenges and need for cross party negotiation • Slow progress on structural corrective fiscal measures over last decade
Alvarado administration passed 2018 reform & Chaves administration maintained solid execution so far – will the fiscal effort weaken? 34
Economic Assessment Our economic assessment focuses on: • Income levels • Growth prospects • Economic diversity and volatility
“Trend” or “medium-term” growth prospects • Diversified, competitive, trade-oriented • Strength of the private sector • Depth of local capital markets • Stable investment climate
35
Costa Rica’s Economic Assessment • Middle income country: PC GDP about $15,000 • Growth had trended slightly lower, now near average ➢ 2018 to 2020 confidence crisis, VAT implementation, pandemic
➢ 2021 to 2022 rebound from pandemic & nearshoring
• • • •
Open & diverse economy: trade, tourism, FDI, & global supply chains ‘Pura Vida’ trademark Infrastructure, business and labor regulation challenges Competitiveness of financial and electricity sectors
How robust is trend growth? Is near-shoring impacting growth nation-wide? Will OECD accession generate competitiveness gains?
36
GDP per capita (thousand US$) 18.00
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00 Nicaragua
Honduras
Guatemala 2011-2021
El Salvador 2022
2023
Dominican Republic
Costa Rica
2024
37
Growth in Real GDP (%) 6.00
5.00
4.00
3.00
2.00
1.00
0.00
Nicaragua
Honduras
Guatemala
2011-2021
El Salvador
2022
2023
Dominican Republic
Costa Rica
2024
38
External Assessment
Our external assessment focuses on: •
The currency’s status in international transactions.
•
A country’s external liquidity, which speaks to the capacity of the economy to generate the foreign exchange necessary to meet its (public and private sector) obligations to nonresidents.
•
A country’s external indebtedness, which shows residents’ assets and liabilities (in both foreign and local currency) vis-à-vis the rest of the world.
39
Costa Rica’ External Assessment • Costa Rica’s Colon not a reserve or actively traded currency • External financing needs stable as share CAR & international reserves • Current account deficits generally covered by FDI • Narrow net external debt burden reflects ➢ Higher public sector external debt (wider fiscal deficits) ➢ Borrowing from market & MLIs ➢ IMF RFI for budgetary support, EFF, RSF ➢ IBRD, CABEI, CAF, IADB, AGF ➢ Risks of smooth market access and financing pressure
40
External Debt Net of Liquid Assets/ CAR (%) 120.00
100.00
80.00
60.00
40.00
20.00
0.00 Nicaragua
Honduras
Guatemala 2011-2021
El Salvador 2022
2023
Dominican Republic
Costa Rica
2024
41
Gross External Financing Needs/CAR + Usable Reserves (%) 140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00 Nicaragua
Honduras
Guatemala 2011-2021
El Salvador 2022
2023
Dominican Republic
Costa Rica
2024
42
Fiscal Assessment Our fiscal assessment focuses on: •
Fiscal flexibility
•
Fiscal trends and vulnerabilities
•
Debt structure and funding
•
Contingent liabilities
43
Costa Rica’s Fiscal Assessment • Fiscal deficits trended higher on increased spending ➢ 8% in 2020; to 4.6% in 2021 to 2% in 2022 and 3.2% over forecast ➢ Average 5% of GDP 2010-2019 vs. 2.5% 2000-2009 ➢ GG revenue base steady at 25% of GDP ➢ GG primary deficit averaged over 2% of GDP 2015-2020, but a surplus in 2022
• Higher debt burden exceeded 60% of GDP beginning 2020 ➢ Debt/GDP more than doubled last ten years ➢ Interest / revenues more than doubled last ten years (to 19%) ➢ Procedural rigidities in debt management (including MLI loans) ➢ Higher foreign currency & external borrowing
• Passage of 2018 fiscal reform ➢ Broader income tax base and shift to VAT ➢ Spending rule has supported fiscal policy execution
• Limited contingent liabilities from financial sector and NFPEs 44
General Government Balance (% of GDP) 2.00
1.00
0.00
(1.00)
(2.00)
(3.00)
(4.00)
(5.00)
(6.00) Nicaragua
Honduras
Guatemala
2011-2021
El Salvador
2022
2023
Dominican Republic
Costa Rica
2024
45
Net General Government Debt (% of GDP) Chart Title 80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00 Nicaragua
Honduras
Guatemala 2011-2021
El Salvador 2022
2023
Dominican Republic
Costa Rica
2024
46
General Government Interest / Revenues (%) 25.00
20.00
15.00
10.00
5.00
0.00 Nicaragua
Honduras
Guatemala 2011-2021
El Salvador 2022
2023
Dominican Republic
Costa Rica
2024
47
Monetary Analysis Our monetary analysis focuses on:
• The ability to use monetary policy to buffer economic conditions and address liquidity pressures. • The credibility of monetary policy, particularly as measured by inflationary trends. • The effectiveness of monetary tools in affecting the real economy, as gauged by the depth and diversification of the financial sector and local currency debt markets.
48
Costa Rica’s Monetary Assessment • Inflation targeting regime: 3.0 +/- 1.0% • Managed, floating-exchange rate regime since 2015 • Inflation has shifted lower ➢ Average inflation of over 10% until 2008 ➢ Since then around 3% on average
• Central Bank cut rates to historic low 1.25% amid pandemic then raised to 9% amid run-up in inflation in 2022, easing cycle since March 2023 • Dollarization of deposits & loans down at 40% ➢ Still weighs on monetary and exchange rate flexibility ➢ Unhedged borrowers in tourism and construction
• Shallow local currency fixed income & equity market; credit/GDP about 50% 49
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50
Octubre 2023
Costa Rica: Perspectivas y Oportunidades Plan y trayectoria hacia el grado de inversión
Siobhan Morden – Head of Fixed Income Sovereign Strategy
Santander US Capital Markets LLC
Strictly Confidential
La calificación no es la determinante única de la valoración
El valor de escasez dentro de la categoría de calificación de BB. Hay una diferenciación clara en valoración entre los créditos líquidos e ilíquidos (Costa Rica/Guatemala vs Republica Dominicana)
Los soberanos donde hay un stock de bonos más grande (~$30bn) hay una penalidad de liquidez mientras los soberanos con un stock de bonos más bajo ($5-$7bn) se beneficia de su iliquidez (inversionistas buy/hold y menos transacciones por menos liquidez)
9.0
9.0
Liquid BB credits (yield, duration, size)
8.5
8.5
8.0
8.0
7.5
7.5
7.0
7.0
6.5
6.5
6.0
6.0
5.5
5.5
5.0
5.0
4.5
4.5
4.0
4.0
3.5
3.5
3.0
La valoración no depende solo de la calificación – La penalidad de liquidez
Illiquid BB credits (yield, duration, size)
3.0 0
1
2
3 DOMREP
4
5
6
7 COLOM
8
9
10
11 BRAZ
12
13
14
0
1
2
3 PARA
4
5
6
7 GUAT
8
9
10
11
12
13
14
COSTAR
Source: Bloomberg
La influencia de las agencias de calificación
El mercado tiene más influencia de los créditos más grandes. Por su mayor peso en los índices, los inversionistas tienen mayor obligación de mayor análisis. También tienen influencia los inversionistas más activos. Más eficaz en valoración.
Hay mayor tendencia de desinformación de los créditos más pequeños - caso Costa Rica en 2023 - cuando la calificación tiene mayor influencia y no reconoce una transformación. Es caso de análisis fluido o estático.
EMUSTRUU % country weighting
Eurobond total debt issuance ($mns)
13 12 11 10 9 8 7 6 5 4 3 2 1 0
Hay problema de información asimétrica por los créditos más pequeños? Análisis fluido o estático.
9.0% 8.0% 7.0% 6.0% 5.0% 4.0%
3.0% 2.0% 1.0% 0.0% MEXI COLO
DOMR
COST
BRAZ
CHIL
COLO
ARGE
PANA
PERU DOMR GUAT
COST
GUAT
Source: Bloomberg
La convergencia con créditos de calificación BB
Costa Rica se benefició de una subida de 2-notches en su calificación de Fitch este año después de la convergencia con los créditos de calificación BB.
Fue el único crédito del EMUSTRUU con rendimiento positivo en 2022. También sigue con mayor rendimiento relativo este año.
Ya no hay críticas de la valoración relativa. El debate ahora es cuando Costa Rica puede lograr su grado de inversión. Credit rating action 2020-2023 upgrade/downgrade (+1/-1)
200
3.0
175
2.0
150
1.0
La transformación a calificación del BB en 2023.
125 100
0.0
75
-1.0
50
-2.0
25 0
-3.0
-4.0
-25 Aug-22
Oct-22
Dec-22
Feb-23
COSTAR-45-GUAT'50
Apr-23
Jun-23
Aug-23
COSTAR'45-PARA'44
Source: Bloomberg
La trayectoria hacia el grado de inversión por Costa Rica. (B2/B+/BB-)
No hay ningún otro país en la región o incluso en el mundo que haya convertido un déficit primario fiscal de 2.6% de PIB en 2018 a un superávit de 2.3% de PIB en 2022. Este representa un ajuste cumulativo de 5% de GDP durante 4 años e incluso tras el choque de COVID. No solo es impresionante el monto de ajuste, pero, en mi perspectiva, representa el comienzo de un ajuste permanente.
Costa Rica es un país con institucionalidad y normas democráticas bien establecidas. La regla fiscal ha sido sometida a varias pruebas legislativas y aun así ha demostrado gran resiliencia. Hay apoyo popular por mantener el ancla fiscal establecida por el FMI así como por los partidos políticos y por otros sectores de la sociedad. La reforma del empleo público contribuirá a un mayor ajuste fiscal.
Por estas razones, hay muy bajo riesgo de desviarse del superávit de 2% de PIB, factor que mantendrá la trayectoria firme de reducir el peso del déficit fiscal.
La economía es sana y se beneficia del crecimiento alto y diversificación, de la inflación baja y estable, y de ingresos fuertes de inversión extranjera, así como de un tipo de cambio flexible. Costa Rica también era ESG antes que existiese este concepto. Es un país incomparable con instituciones fuertes, trayectoria ambiental sin igual e indicadores sociales fuertes.
Si bien se puede debatir sobre la velocidad de convergencia hacia grado de inversión de Costa Rica y que país llega primero dentro del CAC, no hay duda de que el país mínimo, merece un grado de BB.
La trayectoria hacia el grado de inversión por Costa Rica – Indicadores Positivos Costa Rica primary fiscal performance (% GDP)
4%
Primary balance 2022 % GDP
2.5%
2.0% 3%
1.5%
2%
1.0% 0.5%
1%
0.0% 0%
-0.5%
-1%
-1.0% -1.5%
-2%
-2.0% -2.5%
-3%
-3.0%
5.2 4.8
2022
2021
5.0
4.8
4.5
4.4
4.2
4.0
3.6
3.4
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
-4%
3.4
3.4
3.0 2.1 1.3
2016
2017
2018
2019
Déficit en cuenta corriente
1.0
2020
2021
Inversión directa
2022
CAC economic activity (%y/y)
11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
2023 Costa Rca
DomRep
Guatemala
El Salvador
Source: Bloomberg, https://www.hacienda.go.cr/, https://www.bccr.fi.cr/
La trayectoria hacia el grado de inversión por Costa Rica – las preguntas
¿La transformación? Paquetazo fiscal – no hay comparación en la región de tanto ajuste fiscal. Este es el ancla y fue la única debilidad. La parálisis de política económica es aceptable.
¿Los riesgos? Las instituciones son más fuertes que los individuos. No hay consenso para debilitar el ancla fiscal. También hay flexibilidad de la reforma del empleo público.
¿El grado de inversión? Plan y trayectoria. No es una solución rápida. Tiene que bajar el peso de deuda desde 60% del PIB a niveles como 40%-50% del PIB para inmunizar contra choques. Este proceso es gradual pero firme.
¿El motivo de mejorar la credencia? El servicio de deuda es grande de ~4% del PIB que complica la rigidez presupuestaria. Es un momento más difícil dado el mayor costo de financiamiento global.
¿La comparación relativa de Perú? El mercado va a anticipar el grado de inversión – hay posibilidad de una tendencia de divergencia. Hay otros países en la región con plan, pero no con la misma firme trayectoria. El impacto es fuerte si logran una calificación del grado de inversión de dos agencias – representa un choque fuerte de mayor acceso de inversionistas y una reducción del premio de riesgo.
La trayectoria hacia el grado de inversión por Costa Rica – los desafíos interest/revenues
IMF projections of primary fiscal (% GDP)
3.0%
40% 2.0%
35% 30%
1.0%
25%
0.0%
20%
-1.0%
15% -2.0% 10% -3.0%
5%
-4.0%
0% 2019
2020
2021
2022
2023
2024
2025
2026
2027
2019
2028
2020
2021
2022
2023
2024
2025
2026
2027
2026
2027
2028
Central government debt % GDP 80%
350
70%
300
60% 250
50% 200
40% 150
30%
100
20%
50
10% 0%
0 0
1
2 GUATEM
3
4
5 PERU
6
7
8
PANAMA
9
10
11
PARAGUAY
12
13
14
COSTAR
15
16
2018
2019
2020
2021
2022 ago.-23 2024
External debt
2025
2028
IMF estimates
Source: Bloomberg, https://www.hacienda.go.cr/, IMF
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