Sharp Fall in Latin America Sovereign External Issuance in 1H22

By Fitch Ratings

NON-RATING ACTION COMMENTARY

Fitch Ratings-New York-02 August 2022: Latin America sovereign external issuance fell by nearly half in 1H22, to just USD20 billion compared with USD37.5 billion in 1H21 and USD38 billion in 1H20, says Fitch Ratings in a new dashboard.

Lower funding needs and greater reliance on domestic markets and multilateral creditors against the backdrop of tightening and volatile international financing conditions underpin the decline. Latin America sovereign issuance has been among the largest in emerging market regions in recent years. 

Fitch expects 2H22 issuance to remain constrained as developed market interest rates are raised to tackle high inflation.

Investment-grade sovereigns (Mexico, Panama and Chile) represented the majority of issuance in 1H22, with Mexico the largest issuer followed by Chile, whose issuance included the first sovereign sustainability-linked bond. Sub-investment grade sovereigns Paraguay, Bolivia, and Dominican Republic returned to markets. This included Bolivia’s first issuance (USD850 million) since 2017 to refinance upcoming Eurobond maturities. All issuance was in US dollars, except for one in euros from Mexico, and largely took place before Russia’s invasion of Ukraine.

Argentina, Ecuador and El Salvador remain shut out of international capital markets with EMBI spreads well above 1,000bp. A USD800 million Eurobond redemption in January 2023 is a key risk for El Salvador, although the government has recently announced its intent to buy back bonds. Argentina remains mired in political, economic and financial market instability. Debt service on restructured hard-currency bonds is low through 2024, but will rise markedly from 2025. Ecuador’s oil-driven fiscal consolidation, manageable near-term debt maturities and IMF programme reduce refinancing risk, but higher spreads reflect rising uncertainties from social protests.