Figures compiled by Citi Research show that emerging markets (EMs) issued $498bn in external sovereign and corporate bonds in 2018, down by 22.3% from $641bn in 2017. Gross debt issuance in Asia excluding Japan reached $253bn or 50.8% of the total, followed by the Middle East & Africa (ME&A) with $113bn (22.7%), Latin America with $71bn (14.3%) and Emerging Europe with $60bn (12%). Further, EM corporates issued $354bn in bonds last year, equivalent to 71.1% of total sovereign and corporate bond issuance. Asia ex-Japan issued $236bn, or 66.7% of total corporate issuance, followed by the ME&A region with $50bn (14.1%), Latin America with $41bn (11.6%) and Emerging Europe with $27bn (7.6%). Also, EM sovereigns issued $144bn in bonds, or 29% of new sovereign and corporate bonds in 2018. The ME&A region issued $63bn, or 43.8% of total new sovereign bonds, followed by Emerging Europe with $33bn (22.9%), Latin America with $30bn (20.8%) and Asia ex-Japan with $17bn (11.8%). Further, Citi projected upcoming EM's sovereign external debt service payments at $20.3bn in the first quarter of 2019, of which $6.8bn, or 33.5% of the total, is from Emerging Europe, $6bn (29.6%) from Latin America, $5.3bn (26.1%) from Asia ex-Japan, and $2.1bn (10.3%) from the ME&A region. It also expected upcoming EM corporate external debt service payments at $22.5bn in the first quarter of 2019, of which $12.8bn, or 57% of the total, is from Asia ex-Japan, $4.7bn (21%) from Latin America, $2.6bn (11.6%) from the ME&A region, and $2.4bn (10.7%) from Emerging Europe. 
Source: Citi Research, Byblos Research

Moody's Investors Service indicated that significant domestic banking constraints in countries in the Middle East and Africa region are intensifying liquidity risks amid tightening global financial conditions. It noted that the constraints on the banks' capacity and willingness to absorb potential increases in government financing needs in the event of a shock would intensify liquidity risks in Angola, Bahrain, Ghana, Kenya and Lebanon. It said that the governments' ability to fund their borrowing needs from domestic banks depends on the latter's capacity and willingness to meet government borrowing needs, as well as on changes in the regulatory environment. Further, it said that the ability of banks in Angola, Bahrain, Ghana, Kenya and Lebanon to absorb government borrowing needs is constrained by either the large borrowing needs relative to the size of the banking sector and the banks' high exposure to government securities, or by low deposit inflows relative to the governments' fiscal deficits. In addition, Moody's pointed out that the banks' willingness to provide financing is influenced by several factors, including policy credibility or the risk-reward trade-off in lending to the private sector versus the government. It said that the vulnerabilities in the Democratic Republic of the Congo, Egypt and Nigeria's banking sectors are related to their small size or large exposure to government securities. But it considered that these constraints are mitigated by the countries' limited government financing needs or by high bank deposit growth and, as such, expected the authorities to rely on domestic banks to cover their financing needs. 
Source: Moody's Investors Service

Citi Research indicated that Ethiopia's foreign currency reserves increased from around $3bn at the end of 2017 to $4.1bn at end-July 2018, mainly supported by a $1bn deposit from the UAE government and a $1.2bn disbursement from the World Bank. However, it noted that the improved reserve position has resulted in a modest change in the National Bank of Ethiopia's (NBE) exchange rate policy. It noted that the NBE allowed the Ethiopian birr to depreciate from ETB23.5 against the US dollar to ETB27 per dollar in October 2017, and has allowed a gradual depreciation since mid-2018 to the current level of ETB28 per dollar. Still, Citi considered that authorities should allow further currency depreciation to over ETB35 per US dollar in order to clear foreign currency backlogs. However, it noted that the Ethiopian government would be concerned about a significant pickup in inflation in the run up to the local elections in 2019, if the NBE allowed a substantial weakening of the currency. In this context, it said that Ethiopia already has consistently had a higher inflation rate than its southern neighbors in East Africa, with its inflation rate averaging around 9.9% annually in the 2014-18 period. It mainly attributed the inflation level to higher food prices, the ongoing foreign exchange shortages and high growth of money supply. Further, Citi indicated that the outlook on the birr is also contingent on the implementation of reforms in 2019 that include the privatization of state-owned enterprises, which could result in significant financial inflows and contain pressure on the currency.
Source: Citi Research