/raid1/www/Hosts/bankrupt/TCRLA_Public/231201.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Friday, December 1, 2023, Vol. 24, No. 241
Headlines
A R G E N T I N A
YPF SA: Milei Taps Oil Veteran to Run State Energy Firm
B A H A M A S
BAHAMAS: Inflation Has Fallen Steadily to 2.3 Percent in July 2023
B E R M U D A
BERMUDA: Sir John Calls for Reshaping of Economy
B R A Z I L
ATLAS LITHIUM: Antonis Palikrousis Has 10.35% Stake as of Feb. 19
BANCO DE BRASILIA: Fitch Places 'B' LongTerm IDR on Watch Negative
E L S A L V A D O R
GRUPO UNICOMER: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
J A M A I C A
JAMAICA: BOJ Reports Success in Controlling Inflation
JAMAICA: Panama Canal Woes Concern Bank of Jamaica
NCB FINANCIAL: Records Decline in Annual Net Profit
M E X I C O
KUO SAB: S&P Cuts ICR to 'BB-' on Rising Leverage, Outlook Stable
N I C A R A G U A
NICARAGUA: Economy Remains Resilient Amidst Multiple Shocks
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A R G E N T I N A
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YPF SA: Milei Taps Oil Veteran to Run State Energy Firm
-------------------------------------------------------
Joe Ryan at Bloomberg News reports that Argentina president-elect
Javier Milei is turning to a longtime oil-industry executive to
lead the nation's state-run energy company that he's pushing to
privatise.
Milei plans to tap Horacio Marin, a 35-year industry veteran who
has worked in the United States and South America, to become
president and chief executive officer of YPF SA, a spokesperson for
the president-elect's Milei's political party said, according to
Bloomberg News.
Marin, who currently oversees exploration and production for
Billionaire Paolo Rocca's shale driller Tecpetrol SA, would be
central to any push by Milei to re-privatise YPF. The company was
nationalised in 2012 to spearhead development of the rich shale
fields of Patagonian, Bloomberg News discloses.
Milei, a libertarian ex-television personality who has drawn
comparisons to Donald Trump, has pledged to stoke new life into
Argentina's oil sector by tearing away export hurdles, uncapping
fuel prices and encouraging competition among drillers, Bloomberg
News relays.
Marin inherits a hosts of challenges at YPF.
In September, a US federal judge ordered Argentina to pay US$16
billion over a lawsuit tied to nationalisation YPF, Bloomberg News
says. The nation's oil infrastructure has atrophied during the
years of government control, Bloomberg News relates. And in
October, Argentina faced widespread fuel shortages because rampant
inflation left YPF unable to pay foreign suppliers for gas and
diesel, Bloomberg News adds.
About YPF SA
YPF S.A. is a vertically integrated, majority state-owned Argentine
energy company, engaged in oil and gas exploration and production,
and the transportation, refining, and marketing of gas and
petroleum products.
Founded in 1922, YPF was an oil company established as a state
enterprise. YPF was later privatized under president Carlos Menem
and was bought by the Spanish firm Repsol in 1999, and the
resulting merged company was call Repsol YPF.
In 2012, about 51% of the firm was renationalized and this was
initiated by President Cristina Fernandez se Kirchner. The
government of Argentina agreed to pay $5 billion compensation to
Repsol.
In April 2023, S&P Global Ratings lowered its local and foreign
currency ratings on YPF SA to 'CCC-' from 'CCC+'. The outlook on
these ratings is now negative. The downgrade follows a similar
action on S&P's long-term foreign currency ratings and T&C on
Argentina, following announced plans that, if implemented, would
oblige some nonfinancial public-sector entities to exchange or
sell their holdings of global-and local-law dollar-denominated
bonds issued during the 2020 restructuring for other locally issued
peso debt, likely dollar-and/or inflation-linked bonds. In S&P's
view, the lack of clarity and the apparent motivation for the
potential transaction underscore heightened credit vulnerabilities,
in particular given the increasing pressures from the severe
drought that Argentina is facing, which further constrains the
already disrupted FX market. This expected greater pressure on the
FX markets also explains S&P's downward revision of the T&C
assessment to 'CCC-'.
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B A H A M A S
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BAHAMAS: Inflation Has Fallen Steadily to 2.3 Percent in July 2023
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The Bahamas' economy continued to rebound vigorously in 2022. Real
GDP growth reached 14.4 percent and unemployment fell to 8.8
percent with a broad-based expansion that was especially strong for
tourism. However, labor force participation, particularly among
men, remained below pre-pandemic levels. In 2023, international
flight and cruise arrivals rose well above their pre-pandemic
levels leading to a projected 4.3 percent expansion in the year,
bringing the economy back to estimates of potential output.
After peaking at 7.1 percent in July 2022, inflation has fallen
steadily to 2.3 percent in July 2023, largely driven by the fall in
global energy prices.
Risks to the outlook are skewed to the downside. A fall in tourism
demand, due to an economic slowdown in source markets could weigh
negatively on the growth outlook. Furthermore, renewed pressures on
global food and oil prices could impose a burden on lower income
households and put pressure on the balance of payments. Any
associated fiscal measures to dampen the pass-through of global
prices to the domestic economy would have to be well-targeted to
mitigate further strain the fiscal position. . Finally, The Bahamas
is highly exposed to risks emanating from climate change and
natural disasters. In the event that risks are realized, domestic
financing challenges could increase.
Creating A More Efficient and Progressive Fiscal Framework
A strong cyclical recovery in revenues and a wind down of
pandemic-related spending have reduced the fiscal deficit to 4.1
percent of GDP in FY2022/23, bringing the central government debt
down to 84 percent of GDP at end-June 2023.The authorities intend
to reduce the deficit to 0.9 percent of GDP in 2023/24, reaching an
overall surplus of 2.1 percent of GDP by FY2026/27. The bulk of
this adjustment would come from a 3 1/2 percent of GDP increase in
revenue collections, largely from improvements in administration.
In addition, 1/2 percent of GDP in additional capital spending are
expected to be funded from lower current spending. This fiscal path
is expected by the authorities to bring public debt to 68 percent
of GDP by FY2026/27.
While the objectives of the authorities' medium term fiscal plan
are laudable, staff assesses that more policy measures will be
needed to achieve this targeted adjustment. In particular, based on
current policies, the fiscal deficit is expected to be 2.6 percent
of GDP in 2023/24 (considerably larger than that expected in the
budget). Over the medium-term, debt would fall to 78 percent of GDP
by 2027/28 but gross financing needs would remain high for the next
several years (at around 20 percent of GDP). Even though, under
this path, debt is judged to be sustainable, a faster reduction in
debt would be valuable in lessening the risk of sovereign stress
and, in so doing, would be rewarded through a lower interest burden
for the public debt.
Beyond reducing the fiscal deficit, a set of comprehensive tax
reforms would be valuable in both raising revenues and improving
progressivity. In particular, the implementation of the OECD global
minimum corporate tax by trading partners provides an opportunity
for The Bahamas to introduce a well-designed corporate income tax
accompanied by a personal income tax on the highest earners. There
is also scope to significantly rationalize existing preferences,
loopholes, and exemptions in the tax system.
Efficiency gains in spending programs and improvements in the
financial management of state-owned enterprises will be needed to
offset some of the budgetary pressures arising from an aging
population. To improve longer-run growth and strengthen social
inclusion, there will be a need to reorient spending priorities
toward education, healthcare, targeted social transfers and
infrastructure (particularly those which will increase resilience
to the effects of climate change).
Better debt management would help reduce the vulnerabilities
created by The Bahamas' high debt rollover needs. Recent reforms to
strengthen the primary and secondary debt markets should help
increase the liquidity of government bonds and incentivize an
increase in domestic holdings of longer duration securities. In
particular, the central bank continues to facilitate the issuance
of T-bills by competitive auction and intends to extend this across
domestic government security maturities. Further reforms to
bolster these efforts can include improving investor relations and
increasing the transparency and predictability of sovereign
issuance plans.
Additional steps should be taken to place more binding limits on
central bank financing of the fiscal deficit. The authorities have
made amendments to the Central Bank Act prohibiting financing the
government via the primary bond market and have also imposed a
lower limit on central bank advances; however, this limit is above
that of regional peers with pegged regimes. A reduction in the
limit on central bank financing should be accompanied by a
well-defined "escape clause" that would be triggered in exceptional
circumstances (e.g., in the event of a large scale natural
disaster). Repaying central bank advances, already at the ceiling,
could also serve to strengthen the credibility of the exchange rate
regime.
Recent welcomed amendments to the new Public Finance Management
(PFM) and Public Procurement Acts will usefully strengthen the
governance framework of SOEs and improve the transparency of public
procurement. The publication of beneficial ownership information is
now mandatory for public contracts funded by an international
funding agency but should be the applicable standard for all
providers that obtain public contracts. Similarly, procurement
documents and audited financial statements of SOEs should be
published on a regular basis. An independent process should be put
in place to select members of the fiscal council. Finally, any
deviations from the targets mandated in the PFM Act should be
time-bound and underpinned by clear guidance on the speed at which
the authorities will revert back to their goals.
Strengthening the Financial System
Protection of the exchange rate peg requires sustained preservation
of international reserves. The recovery in tourism, external public
sector borrowing, and the presence of long-standing capital flow
management measures have supported international reserve
accumulation even as domestic short-term interest rates remain well
below those in the United States. However, capital flows can be
sensitive to interest rate differentials, especially during periods
of uncertainty or volatility. Liquidity management operations, as
well as allowing interest rates to rise as needed by market
conditions could be useful for mitigating these risks, reduce
banks' carrying cost of reserves and, in turn, narrow the spreads
between deposit rates and rates on loans to private borrowers.
Usage of the Sand Dollar, the central bank's digital currency,
remains limited. Despite the large diffusion of electronic wallets,
the Sand Dollar still represents a small, albeit growing,
percentage of money in circulation. The central bank is continuing
its outreach efforts to the public and has formalized the
governance framework surrounding the Sand Dollar. The Bank
multipronged approach to increasing Sand Dollar adoption has the
potential to increase financial inclusion and increase the
resilience of the payment system. Continued efforts to identify and
manage cybersecurity risks and improve the security infrastructure
will also bolster confidence in the Sand Dollar, and strengthen
prospects for a larger circulation.
Deeper efforts are recommended to analyze, monitor, and mitigate
financial stability risks stemming from crypto assets. The
regulatory framework for crypto assets has been updated and the
authorities have legislated an amendment to the Digital Assets and
Registered Exchanges (DARE) Act to strengthen the regulation and
supervision of crypto assets. Critically, this should be
accompanied by the provision of more resources for onsite
inspections to help identify and rectify operational deficiencies
and reduce reputational risks. Further amendments to the
legislation to fully align The Bahamas' framework for crypto assets
with global standards like the Financial Stability Board's
high-level recommendations on crypto assets and the Basel Committee
standards on the prudential treatment of crypto exposures are
advised. Vigilance in this nascent but rapidly-evolving area of
regulatory oversight will be of the essence.
The progress made by the authorities in implementing the 2019 FSAP
recommendations are welcome, but some areas remain to be addressed.
A separate Resolution Unit within the central bank has been
established but will require adequate staffing to become fully
operational. Plans are underway to establish The Bahamas Financial
Stability Council (BFSC) to improve interagency coordination and
information exchange among financial stability regulators. Efforts
should be furthered to increase the coverage of deposit insurance
for domestic banks by increasing premiums levied on banks for all
deposit liabilities, while improving the Deposit Insurance
Corporation's governance and operational structure. The collection
of loan-level data by supervisors would assist in identifying
systemic risks and, if needed, in designing macroprudential
policies.
Boosting Resilience and Growth
New avenues for climate finance have the potential to bolster
fiscal and environmental sustainability. Building credible
measurement, reporting and verification frameworks for
climate-related projects, developing projects that have co-benefits
across other Sustainable Development Goals, and partnering with
established institutions in climate finance will help set high
standards in assessing projects through an environmental lens.
Creating a credible domestic framework for climate-related
investments can help catalyze investor interest in green and blue
debt instruments as well as the sale of carbon credits. Similarly,
developing a domestic framework for Environmental, Social and
Corporate Governance bonds (including introducing reporting
standards for sustainability disclosures by companies) would help
support new avenues for climate financing to Bahamian public and
private sector entities.
Accelerating the transition to renewable energy will help boost
private sector growth and reduce the country's exposure to global
swings in commodity prices. High and volatile energy prices and
supply reliability issues are a disincentive to private investment.
Accelerating solar projects and improving the national electricity
company's governance structure could help lower costs, increase the
continuity of energy supply, and raise the share of renewables
toward the authorities' goal of 30 percent by 2030. Other
investments in renewables—particularly roof-top solar—should be
incentivized through either subsidies or tax preferences and
private-public partnerships should be encouraged, especially on
remote islands.
Property insurance premiums have been steadily increasing due to
the high costs of reinsurance. This is leading to decreased
insurance coverage which, in the event of an extreme weather event,
can potentially lead to significant losses for the population and,
ultimately, create large fiscal needs. Partial public funding of
micro-insurance products could be expanded in combination with a
public mandate to carry a minimum level of property insurance.
Increased fiscal buffers will be needed to provide some relief to
those that may be affected in a future disaster. Finally, the
authorities could consider designing financial instruments that
incentivize private self-insurance.
The government has made significant progress in the digitalization
of public services and data gathering. Addressing the remaining
gaps has the potential to help reduce frictions that
dis-incentivize private investment as well as improve the targeting
of social assistance programs.
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B E R M U D A
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BERMUDA: Sir John Calls for Reshaping of Economy
------------------------------------------------
David Fox at The Royal Gazette reports that one of Bermuda's most
successful realtors and businessmen has warned of the need to
de-shackle Bermudians from institutional restraints that have
hindered their development.
Bermuda's longest serving premier and one-time head of Bermuda's
dominant real estate developer, Sir John Swan, was in the news last
week bringing discussion and controversy to the government plan to
make Bermuda a Caricom country, according to The Royal Gazette.
Bermuda's only living National Hero, Sir John, who served as
Premier of Bermuda from 1982 to 1995, believes such a decision
should only be decided by a referendum.
But he also spoke at the Bermuda Chamber of Commerce Real Estate
Division annual meeting that the division described as an
"insightful and thought-provoking gathering," the report notes.
The report relays that acknowledging his prominence in Bermuda's
business and political circles, the division said: "Sir John Swan
delved into various topics, highlighting the need for change and
progress within Bermuda.
"With strong conviction, he emphasized the importance of embracing
the potential of technological advancements, particularly
artificial intelligence, and the profound impact it will have on
various sectors, including real estate.
"During his address, he underscored the urgency to reshape
Bermuda's economy, emphasizing that the existing structure hinders
the growth and development of Bermudians.
"He voiced the importance of proactive industry initiatives, rather
than solely relying on the government, to address challenges and
create meaningful change within the real estate sector," the report
says.
The Real Estate Division quoted Sir John as saying: "Bermuda has an
upside-down economy that does not support Bermudians at all.
"Bermuda has made money from international business but it has come
back to bite us because we did not have the infrastructure
necessary to support locals," the report notes.
The division's statement added: "Drawing attention to the
limitations imposed on Bermudians by institutional constraints, Sir
John Swan advocates for an empowered mindset.
"His rallying call encouraged attendees to move away from
fear-driven decision-making and instead embrace a love for Bermuda,
striving to shape a future that aligns with the needs and
aspirations of Bermudians," the report discloses
He is quoted: "Don't be governed by fear, be governed by your love
for Bermuda," the report relays.
In response to questions of what Bermudians can do to navigate
through Bermuda's challenges, Sir John advised: Bermudians should
use willpower to take decisive action; avoid being held back by
fear; and, maintain a positive vision and see the future as a
promise to oneself, the report notes.
The former premier already caused a storm at a press conference,
when he warned that the Government's planned Caricom membership,
with free movement of Caricom nationals as of next year, could
affect local employee hirings and threaten Bermuda's important
relationships with major trading partners, the report adds.
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B R A Z I L
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ATLAS LITHIUM: Antonis Palikrousis Has 10.35% Stake as of Feb. 19
-----------------------------------------------------------------
In a Schedule 13G/A filed with the Securities and Exchange
Commission, Antonis Palikrousis disclosed that as of Feb. 19, 2023,
he beneficially owned 680,000 shares of common stock of Atlas
Lithium Corporation, representing 10.35% of the shares
outstanding.
A full-text copy of the regulatory filing is available for free
at:
https://www.sec.gov/Archives/edgar/data/1540684/000121465923014891/z117230sc13ga1.htm
About Atlas Lithium
Atlas Lithium Corporations formerly Brazil Minerals, Inc. is a
mineral exploration and development company with lithium projects
and exploration properties in other critical and battery minerals,
including nickel, rare earths, graphite, and titanium, to power the
increased demand for electrification. The Company's current focus
is on developing its hard-rock lithium project located in Minas
Gerais State in Brazil at a well-known, premier pegmatitic district
in Brazil. The Company intends to produce and sell lithium
concentrate, a key ingredient for the global battery supply chain.
Atlas Lithium reported a net loss of $5.66 million in 2022, a net
loss of $4.03 million in 2021, a net loss of $1.55 million in 2020,
a net loss of $2.08 million in 2019, a net loss of $1.85 million in
2018, a net loss of $1.89 million in 2017, a net loss of $1.74
million in 2016, and a net loss of $1.88 million in 2015. For the
nine months ended Sept. 30, 2023, the Company reported a net loss
of $25.60 million.
BANCO DE BRASILIA: Fitch Places 'B' LongTerm IDR on Watch Negative
------------------------------------------------------------------
Fitch Ratings has downgraded Banco de Brasilia SA's (BRB) Viability
Ratings (VR) to 'b-' from 'b'. At the same time, Fitch has placed
BRB's Long-Term Foreign and Local Currency Issuer Default Ratings
(IDRs), Shareholder Support Rating (SSR) and National LT Rating on
Rating Watch Negative (RWN). BRB's VR was maintained on RWN.
Today's rating actions highlight BRB's low capitalization that is
very close to the minimum regulatory requirement with little room
to maneuver, as it operates within regulatory buffers for its CET1
ratio, and the ensuing constraints on its business model and on
Fitch's overall shareholder support assessment for the bank.
KEY RATING DRIVERS
IDRs, SHAREHOLDER SUPPORT RATING AND NATIONAL RATINGS
The IDRs, SSRs and National Ratings of BRB reflect Fitch's view
that extraordinary support from its parent Government of Federal
District (GDF) would be provided for the bank in case it is needed.
However, Fitch's view of GDF's propensity to support BRB has been
moderate despite the large strategic role of the bank to its parent
and the current capital shortage of the bank close to breaching the
regulatory limits. Fitch also considers in its support assessment
the limited ability of the parent to give support. GDF's incentives
to provide support to BRB stem from the bank's strategic importance
for GDF, as it is the local government's main financial agent and
has a meaningful market share in loans and deposits in its home
town, the Federal District.
However, the timeliness of GDF's support, which could be delayed by
operational obstacles, has become particularly important in Fitch's
assessment of the support given BRB's current core capitalization
stance. For this reason, Fitch has placed BRB's IDRs, SSR and
National Ratings on RWN. Failure to receive extraordinary support
from its parent in a timely manner, if required, could pose a risk
to the support-based ratings and lead Fitch to reassess BRB's
importance to the state.
BRB's National Ratings are notched from Fitch's view of GDF's
creditworthiness on the national scale. Fitch believes the bank's
national scale rating better reflects its creditworthiness relative
to its respective supporting entity.
VR
The downgrade of the VR reflects BRB's weakened creditworthiness
relative to that of peers in Brazil, as underlined by its thin core
capital buffer and pressured, albeit recovering, profitability.
The RWN on the bank's VR reflects Fitch's view that near-term
downside risks to the bank's core capital buffers and business
model stabilization are elevated. BRB's common equity tier 1 (CET1)
ratio of 7.59% at the end of 3Q23 remains tight relative to the
minimum requirement of 7.0%, which reduces its financial
flexibility to respond to adverse shocks and grow businesses. Fitch
expects BRB to continue relying on risk-weighted asset (RWA)
optimization measures to avoid breaching the regulatory
requirements.
The VR is below the implied VRs of 'b', because Fitch's assessment
of the group's capitalization and leverage has high influence on
the VRs and it is the weakest link in the creditworthiness of the
bank.
Management continues to focus on RWA optimization and asset sales
to gradually restore the capital position. The bank has also
accelerated commercial and cost efficiency measures to strengthen
profitability. BRB's operating profit/RWAs improved to 0.2% in 9M23
after an operating loss on the bank's restated 1H23 financial
statements due to accounting divergences on revenue recognition
flagged by the Brazilian Central Bank in early 2023. Still, in
Fitch's view, BRB's business and earnings profile is sensitive to
execution risks. Fitch believes the business profile has come under
increasing pressure from weaker earnings prospects and capital
constraints, which will make it difficult for the bank to increase
business volumes and defend earnings against unexpected shocks in
the medium term.
BRB plans to execute a follow-on in the medium term, aiming to gain
capital management flexibility, but Fitch considers this unlikely
to materialize within the next six months and highly dependent on
market conditions.
BRB's funding and liquidity profile has remained stable since the
last review. BRB continues benefits from a stable and diversified
customer base, funding its loan book through a combination of
retail deposits (23% of deposits as of 3Q23), judicial deposits
(42%), deposits from its majority shareholder, the Federal District
Government (9%) and from corporates/ institutions (17%). The bank's
liquidity position is adequate against short-term maturities.
Fitch aims to resolve the RWN in the next six months depending how
the bank's capitalization and profitability positions evolve.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
IDRs, SSR AND NATIONAL RATINGS
The ratings will be downgraded if Fitch perceives the risk of a
capital breach and /or regulatory intervention to be a possibility.
The ratings could also be downgraded if Fitch believes BRB's
strategic role and importance to the state have diminished.
VR
The ratings are primarily sensitive to BRB's capitalization. The VR
could be downgraded if capital optimization measures, including
potential reductions in RWAs, were unsuccessful and insufficient to
prevent a regulatory capital breach. The ratings would also come
under pressure if its earnings prospects materially weaken and
delay the improvement of capital generation.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
IDR, SSR and NATIONAL RATINGS
There is limited scope for upward rating action given the RWN.
VR
The VR could be affirmed and removed from RWN if the bank managed
to bring sustainable relief to its capital position without
compromising structural profitability, for instance through fresh
capital injections or by substantially optimizing its RWAs, if this
results in improved prospects for business model stabilization and
core profitability.
Over time, the ratings could be upgraded if there is a clear path
to sustainable profitability as well as adequate capitalization and
buffers.
VR ADJUSTMENTS
The Viability Rating has been assigned below the implied Viability
Rating due to the following adjustment reason: Weakest Link -
Capitalization & Leverage (negative).
The Business Profile score has been assigned below the implied
score due to the following adjustment reason: Management and
Governance (negative).
The Asset Quality score has been assigned below the implied score
due to the following adjustment reason: Underwriting Standards and
Growth (negative).
The Earnings & Profitability score has been assigned below the
implied score due to the following adjustment reason: Historical
and Future Metrics (negative).
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
BRB's ratings are driven by GDF's ratings.
ESG CONSIDERATIONS
Fitch has revised BRB's ESG Relevance score for Financial
Transparency to '4' from '3'. In August 2023, Brazil's Central Bank
identified the need to restate BRB's end-June 2023 financial
statements following accounting records that were not properly
registered. While Fitch understands from BRB's management that they
are now in compliance with Bacen requirements, Fitch recognizes
that this event raises a concern for the bank's overall governance
profile, and may have a negative impact on the credit profile,
being relevant to the ratings in conjunction with other factors.
Fitch expects management practices and financial transparency
measures to improve in the long term, ensuring such failings do not
reoccur. Fitch may revise its ESG Relevance score to '3' if there
is no reoccurrence of this or similar governance issues.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
BRB - Banco de
Brasilia SA LT IDR B Rating Watch On B
ST IDR B Rating Watch On B
LC LT IDR B Rating Watch On B
LC ST IDR B Rating Watch On B
Natl LT A-(bra)Rating Watch On A-(bra)
Natl ST F1(bra)Rating Watch On F1(bra)
Viability b- Downgrade b
Shareholder Support b Rating Watch On b
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E L S A L V A D O R
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GRUPO UNICOMER: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
----------------------------------------------------------------
Fitch Ratings has affirmed Grupo Unicomer Corp.'s (Unicomer)
Long-Term Local and Foreign Currency Issuer Default Ratings (IDRs)
at 'BB-'. The Rating Outlook is Stable.
Unicomer's ratings incorporate its leading business position,
relatively stable operating cash flows and the solid financial
position of its shareholders. The ratings also consider Unicomer's
geographic and format diversification, which have contributed to
solid operating cash flow generation throughout economic cycles.
The company has shown ability to innovate and quickly respond to
different consumer environments through the combination of its
retail and financial businesses.
The company has faced some operating challenges since the pandemic
and Fitch expects profitability will recover during the next 18
months due to a number of initiatives in execution. Fitch expects
Unicomer's net adjusted leverage metrics to trend to around 4.5x by
FY 2025 and commensurate with its rating level.
KEY RATING DRIVERS
Expected Operating Recovery in Guatemala and Jamaica: Fitch expects
Unicomer's operations in Guatemala and Jamaica to recover gradually
during the next couple of years after facing individual challenges
in these countries. Guatemala' s operations were restructured and
should start showing results by FY 2024. Jamaica's performance
should also gradually recover after a weak credit system platform
implementation that affected the country's operations.
Solid Business Position: Unicomer has commercial operations in 24
countries across Central America, South America and the Caribbean.
The company has a track record of more than 22 years in consumer
durables sales, which has enabled it to develop long-term
relationships with suppliers. These relationships provide
competitive advantages in terms of store location within small
countries, where prime retailing points of sale are very limited.
The company maintains a leading business position in the retailing
of consumer durable goods, supported by proprietary financing
services and economies of scale in terms of purchasing power and
logistics.
Expected Improvements in Cash Generation: Fitch expects the
company's cash from operations (CFO) to be positive and FCF to be
neutral or slightly negative by FY ending March 2024. Unicomer
managed to reduce inventory levels during the year. During 2021 and
2022, the company's CFO was affected by higher working capital
requirements related to resumption of portfolio growth and higher
inventory levels to mitigate supply disruptions. Medium-term CFO is
estimated to be over USD80 million. Capex levels should be around
USD42 million per year during the medium term, excluding potential
acquisitions, and FCF is projected to be above USD30 million per
year.
Attractive Portfolio Net Yield: The company's consumer finance
strategy includes sufficient financial spreads to cover credit
risks in the portfolio. During the past 10 years, the portfolio
yield after deducting expenses, uncollectable expenses and
write-offs has been nearly 35% on average. As of Sept. 30, 2023,
Unicomer's credit portfolio had NPLs (past due accounts for 90 days
or more) of 8.2%, similar to that of a year ago and still higher
than the 7.5% level presented pre-pandemic. The company has
provisions equivalent to 123% of those NPLs. The level of overdue
accounts is offset by the company's efficient collection program
and portfolio yield.
Geographic and Format Diversification: Geographic diversification
allows Unicomer to have a broad revenue base, supported by
different economic dynamics and mitigates the company's country
risk from any individual market. Costa Rica, Jamaica, Guyana, El
Salvador and Bermuda, are among the most important cash flow
contributors, which gives Unicomer some strength and stability to
operating cash flows. Despite geographic diversification, most of
the sovereign ratings of countries in which the company operates
are in the 'B' or 'BB' rating category. The company has several
store formats and brands across operations that cover different
socioeconomic segments of the population.
Growth Funded Mainly With Debt: Grupo Unicomer has expanded its
operations through a combination of organic and inorganic growth.
While organic growth was primarily funded with internal operating
cash flows, acquisitions were funded mainly with debt. As of June
2023, consolidated net adjusted debt/EBITDAR was 5.6x which is weak
for its rating but Fitch expects the company to improve this ratio
to around 4.5x by FY 2025 mainly on profitability recovery. An
important portion of the company's debt is related to the financial
business and repaid with credit portfolio collections. Excluding
the consumer finance business, the retail-only gross adjusted
leverage should trend to close to 4.5x in the next two to three
years.
Strong Shareholders: Grupo Unicomer's ratings are viewed on a
standalone basis, however, the ratings consider the sound financial
position of Unicomer shareholders Milady Group and El Puerto de
Liverpool, S.A.B. de C.V. (BBB+/Stable), each of which owns 50% of
the company. Liverpool has a proven track record in retail since
1847 in Mexico. In Fitch's view, the shareholders' solid credit
profiles give flexibility to Grupo Unicomer, as the shareholders'
financial position do not rely on Unicomer's dividend payments.
Milady's operations include real estate developments, department
store chains, all Inditex's franchises in Central America, and a
vertically integrated textile manufacturing and wholesaling
business. Liverpool, a department store business with 319 units and
28 shopping malls in Mexico, had approximately USD9.5 billion in
total revenues during 2022.
DERIVATION SUMMARY
Unicomer has about the same scale in number of stores as Grupo
Elektra, S.A.B. de C.V. (BB/Stable) and more than El Puerto de
Liverpool, S.A.B. de C.V. (BBB+/Stable) and Mobilux 2 SAS
(B/Positive). Unicomer's credit portfolio of USD1.1 billion is
smaller in size than Elektra's, and Liverpool's, with credit
portfolios of around USD9 billion and USD3.7 billion, respectively.
Unicomer is more geographically diversified than Elektra, Liverpool
and Mobilux, whose operations are concentrated mainly in one
market. Unicomer's broad geographic diversification mitigates
operating risk of any individual market.
From a financial profile view, the company has profitability
margins of close to 14% on average, similar to those of Elektra,
slightly lower than Liverpool's average of 15.5% and higher than
Mobilux's of 13%. Fitch expects Unicomer's gross adjusted leverage
to trend below 5.0x, while for Mobilux that ratio should be around
4.5x and for Elektra it should trend below 3.0x over the next two
to three years. Per Fitch's criteria, Unicomer's applicable Country
Ceiling is 'BB'. At the current rating level, the operating
environments (OE) of the countries where the company has operations
do not constrain the ratings but the OE cap the ratings in the
upper 'BB' rating range.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Consolidated annual revenue growth of 7% on average for FY 2024
to FY 2027;
- An EBITDAR margin of 14% on average for FY 2024 to FY 2027;
- Capex of around USD30 million for FY 2024 and USD42 million in
average annually for FY 2025 to FY2027;
- Dividend payment of USD11 million in average during FY 2024 and
FY 2025 and USD22 million in average for FY 2026 and FY2027.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- Diversification of operating subsidiaries in countries with lower
sovereign risk;
- Consolidated adjusted net leverage close to 4.0x on a sustained
basis;
- Retail-only adjusted net leverage close to 3.5x on a sustained
basis;
- Maintained credit quality of the portfolio and significant
reduction in its current maturities, resulting in a consistent
ratio of cash plus CFFO/short-term debt of 1.0x.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- Sustained deterioration in overdue accounts from the consumer
finance business;
- A significant reduction in cash flow generation that results in
sustained negative FCF margin;
- Further debt-financed acquisition activity resulting in a
consolidated net adjusted debt/EBITDAR above 5.0x;
- Retail-only net adjusted leverage above 4.5x on a sustained
basis;
- Deterioration of liquidity compared with short-term debt;
- Sustained deterioration in the OE of countries where the company
operates.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: Unicomer reported total debt of USD808 million,
as of June 30, 2023, of which USD617 million was short term. This
level of short-term debt compares with USD135 million of cash and
marketable securities and a short-term credit receivables portfolio
of USD595 million. The company refinanced its senior notes in
November 2023 with a syndicated loan with annual payments starting
in year two. On a pro forma basis, considering the recent
refinancing of the senior notes, short-term debt maturities are
calculated at around USD200 million.
Fitch believes Unicomer's liquidity cushion of cash on hand and
operating cash flows coupled with its portfolio of receivables is
sufficient to cover short-term debt. The liquidity ratio, measured
as cash and marketable securities over short-term debt (excluding
the refinanced senior notes), was 0.5x as of June 30, 2023. When
including short-term account receivables in the calculation, the
ratio increases to 2.7x.
ISSUER PROFILE
Grupo Unicomer Corp. is a leading retailer of durable consumer
goods with operations in 24 countries across Central America, South
America and the Caribbean. The company operates 1,244 points of
sale and 397,000 m2 of retail space with different brands.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Grupo Unicomer Corp. LT IDR BB- Affirmed BB-
LC LT IDR BB- Affirmed BB-
=============
J A M A I C A
=============
JAMAICA: BOJ Reports Success in Controlling Inflation
-----------------------------------------------------
RJR News reports that the Bank of Jamaica is reporting that it has
achieved significant success in its efforts to control inflation.
As reported by the Statistical Institute of Jamaica (STATIN),
headline inflation at October was 5.1 per cent, which is within the
central bank's target range of 4 to 6 per cent, according to RJR
News.
October's rate was also below the 5.9 per cent recorded at
September 2023, and significantly lower than the peak rate of 11.8
per cent recorded at April 2022, the report notes.
BOJ Governor Richard Byles said contributors to the lower inflation
rate at October were declines in key drivers such as grain prices
and lower shipping costs, the report relays.
"The exchange rate has also remained generally stable, given strong
tourism and remittance inflows. However, the annual inflation rate
at October continued to be affected by elevated, albeit moderated
domestic agricultural price inflation," he noted, the report
discloses.
The BOJ Governor said the monetary policy committee, at its
meetings on November 17 and 20, projected that inflation would rise
above the bank's target range between the period December 2023 to
March 2025, the report says. This, the committee said, was due in
large part to the impact of announced bus and taxi fare increases,
the report relays.
But Governor Byles said this forecast has been revised, given the
planned temporary reduction in fares for the Jamaica Urban Transit
Company (JUTC), the report discloses.
"In the context of the announcement by the Minister of Finance and
Public Service of a temporary two-step reduction in JUTC bus fares,
effective January 1 and April 1, 2024, inflation is now projected
to generally remain within the target range except for December
2023 and a few months in 2024. The announced fiscal measure will
have a material impact on tempering the potential inflationary
pressures of the PPV fare increases," the report relays.
In the meantime, Deputy BOJ Governor Robert Stennett said the
central bank back to the drawing board in relation to its
projections for a fall in consumer prices for the quarter ending
December, the report notes. This is due to the effects of heavy
rains on the agriculture sector, with projections of millions of
dollars in losses to farmers, the report relays.
"All of that is now off the table. We are awaiting the data to
make a better assessment. But our underlying assumption is that
it's going to derail those declines that we are building, the
extent to which is something that we will have to assess.
Agriculture, as you know, is very important for the CPI. It
represents about nine and a half per cent of total consumer prices.
So this is something that is going to be the subject of our usual
scrutiny," he added.
Mr. Stennett and Mr. Byles were speaking at the BOJ's quarterly
monetary press conference.
About Jamaica
Jamaica is an island country situated in the Caribbean Sea.
Jamaica is an upper-middle income country with an economy heavily
dependent on tourism. Other major sectors of the Jamaican economy
include agriculture, mining, manufacturing, petroleum refining,
financial and insurance services.
In October 2023, Moody's upgraded the Government of Jamaica's
long-term issuer and senior unsecured ratings to B1 from B2, and
senior unsecured shelf rating to (P)B1 from (P)B2. The outlook has
been changed to positive from stable. The upgrade of Jamaica's
rating to B1 reflects the government's sustained commitment to
fiscal consolidation and debt reduction. The positive outlook
reflects Moody's assessment that a continuation of the favorable
fiscal trajectory will further increase Jamaica's credit
resilience.
S&P Global Ratings raised on September 13, 2023, its long-term
foreign and local currency sovereign credit ratings on Jamaica to
'BB-' from 'B+', and affirmed its short-term foreign and local
currency sovereign credit ratings at 'B'. The stable outlook
reflects S&P's expectation that the government will remain
committed to prudent fiscal policies and reducing debt, as well as
supportive economic policies including a flexible exchange rate
regime and effective monetary policy.
In March 2022, Fitch Ratings affirmed Jamaica's Long-Term Foreign
Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is
Stable.
JAMAICA: Panama Canal Woes Concern Bank of Jamaica
--------------------------------------------------
Dashan Hendricks at Jamaica Observer reports that the Bank of
Jamaica (BOJ) has signaled that the worsening shipping delays
through the Panama Canal are threatening to pull it into a new
fight against inflation, just as it is managing to show some
success in its two-year battle against price increases.
The delays have affected up to 20 per cent of trade flows to
Jamaica, according to the International Monetary Fund (IMF), and
could spark another round of inflationary pressures as shippers pay
more to move goods, and pass on the added costs to consumers,
according to Jamaica Observer.
The issue was discussed during the September meeting of the central
bank's monetary policy committee (MPC) and was itemized in the
minutes as one of the developing "risks" it must pay attention to
as a drought, exacerbated by a severe El Nino weather system in
Panama, continues to plague water levels at the Gatun Lake, which
feeds the locks of the key global trade conduit, the report notes.
"Dry weather conditions in Central America contributed to a decline
in the water level in the Panama Canal and an increase in the
waiting times for vessels," the minutes said, notes the report.
This was the first time MPC minutes show the matter was discussed
at its meeting since the Panama Canal Authority (ACP), in July,
started restricting the number of ships that can travel through the
vital maritime trade route. Around 1,000 ships pass through the
Panama Canal each month, carrying a total of over 40 million tonnes
of goods -- about 5 per cent of global maritime trade volumes, the
report says.
But according to Panama Canal authorities, the drought requires
them to reduce the number of daily transits from 29 to 25 ships per
day, starting this month, and in the proceeding weeks, they will
reduce vessel transits even more until it declines to 18 ships a
day in February, the report discloses. That represents between 40
per cent to 50 per cent of full capacity, the report says. Before
the restrictions, up to 38 vessels traversed the canal daily, the
report notes.
The International Monetary Fund (IMF), in a blog post, said data it
examined on the UN global platform, Portwatch, show ports in
Jamaica, Panama, Nicaragua, Ecuador, Peru, and El Salvador "are
suffering most from these delays, with 10 per cent to 25 per cent
of their total maritime trade flows affected," the report relays.
Kingston Freeport Terminal Limited (KFTL), a container port, told
the Jamaica Observer in e-mailed responses that shipping lines
using its facility have been experiencing delays when using the
Panama Canal, forcing some to find alternative routes to move goods
from the Pacific Ocean to the Atlantic, the report discloses.
"Shipping lines are readjusting their schedules and port
rotations," KFTL's response said. But as water levels in the canal
decline, the canal authority is also limiting how far a ship's hull
can go below the water, known as its draft, which significantly
reduces how much goods a ship can carry. At present conditions,
vessels are traversing the canal 40 per cent lighter, the report
relays.
"To comply with the new draft restrictions imposed by the Panama
Canal [Authority], shipping lines are adding stops in west coast
South American ports and dropping off cargo," KFTL added. Some
containerships are unloading their containers and moving them
either by rail or road across Panama to be loaded on vessels on the
other side, the report notes.
KFTL, however, said the delays have not impacted its operations,
though shipping lines are likely to face higher costs as some pay a
big fee to jump the line, wait more than two days in some cases
before getting a slot to move across the 40-mile wide isthmus, or
avoid the canal entirely by taking a longer route, the report
discloses.
"If the restrictions intensify, we expect to see US east coast
cargo . . . being transported by rail from the west coast ports.
The same could happen in other countries that have access to both
the Pacific and Atlantic oceans. We could also see some shipping
lines using the Suez Canal route on the back leg to Asia," the KFTL
response pointed out. Using the Suez Canal across Egypt to access
East Asia could add up to six days to the journey. Already Panama
is planning a project to increase water to the canal, but that is
only in the early planning stages, the report relays.
"We continue to invest and prepare for growth in the region," KFTL
continued. It said traffic from within the Americas continues to
grow as the need for nearshoring continues, the report says.
Kingston Wharves was asked for responses as well but did not reply
in time for the publication of this article, the report discloses.
For shipping lines, the cost is stacking up already, the report
relays. One shipping executive told The New York Times that his
company decided in August to pay US$400,000 in a special auction to
move a ship ahead in the queue, roughly doubling the total cost of
using the canal, the report notes. Other companies have paid over
US$2 million, a cost they will sometimes bear to ensure ships don't
miss their next assignment, the report relays. A portion of these
extra costs will be passed on to consumers, who are already being
pummelled by inflation, the report discloses.
"If this was a year ago, when we still had record-high freight
rates and consumers still spending a lot on containerised goods
from the Far East, then you would see more drama than you have
now," said Peter Sand, chief analyst at Xeneta, a shipping market
analytics company, the report notes.
Disruptions in maritime shipping have been consistent over the past
few years, whether it's port congestion or the infamous blockage of
the Suez Canal in 2021, the report relays. In response, shippers
have learnt to divert cargo - this time, their options include
longer intermodal routes and alternative shipping lanes, the report
notes. As a nation, the US will be hit hardest, the report relays.
Forty per cent of all US container traffic travel through the
Panama Canal every year, which in all moves roughly US$270 billion
in cargo annually, the report says. Panama is not likely to be hit
as hard by the backlog as the canal only generates six per cent of
the country's gross domestic product (GDP), the report adds.
About Jamaica
Jamaica is an island country situated in the Caribbean Sea.
Jamaica is an upper-middle income country with an economy heavily
dependent on tourism. Other major sectors of the Jamaican economy
include agriculture, mining, manufacturing, petroleum refining,
financial and insurance services.
In October 2023, Moody's upgraded the Government of Jamaica's
long-term issuer and senior unsecured ratings to B1 from B2, and
senior unsecured shelf rating to (P)B1 from (P)B2. The outlook has
been changed to positive from stable. The upgrade of Jamaica's
rating to B1 reflects the government's sustained commitment to
fiscal consolidation and debt reduction. The positive outlook
reflects Moody's assessment that a continuation of the favorable
fiscal trajectory will further increase Jamaica's credit
resilience.
S&P Global Ratings raised on September 13, 2023, its long-term
foreign and local currency sovereign credit ratings on Jamaica to
'BB-' from 'B+', and affirmed its short-term foreign and local
currency sovereign credit ratings at 'B'. The stable outlook
reflects S&P's expectation that the government will remain
committed to prudent fiscal policies and reducing debt, as well as
supportive economic policies including a flexible exchange rate
regime and effective monetary policy.
In March 2022, Fitch Ratings affirmed Jamaica's Long-Term Foreign
Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is
Stable.
NCB FINANCIAL: Records Decline in Annual Net Profit
---------------------------------------------------
RJR News reports that NCB Financial Group is reporting a 56 per
cent decline in net profit for its financial year ended September
30, compared with the similar period in 2022.
Net profit for the 2023 financial year was $15.3 billion, $19.8
billion less than for the prior year, according to RJR News.
Chief Financial Officer Malcolm Saddler said the net result was
affected by significant non-recurring events, primarily related to
strategic restructuring efforts, the report notes.
"Operating expenses of $117.7 billion grew by $12 billion or 11 per
cent mainly due to staff costs growing by $10.3 billion or 20 per
cent over the prior," he noted, the report relays.
Additionally, he pointed to leadership and other changes during the
September quarter, resulting in non-recurring expenses associated
with the restructuring activities, the report discloses.
"Due to the restructuring activities and other factors, our cost to
income ratio increased from 71.40 in the prior to 82.54 per cent in
the current year," Mr. Saddler added.
As recently reported in the Troubled Company Reporter-Latin
America, Jamaica Observer relayed that the NCB Financial Group is
yet to complete negotiations with its former president and CEO
Patrick Hylton and his deputy, Dennis Cohen, over the settlement in
relation to their separation from the company. At the centre of
the negotiations is the size of the separation package for the two
men who served the financial conglomerate for the last two decades,
including what value the company should compensate the men for
shares they were asked to surrender in July 2021, according to
Jamaica Observer. Both men were asked to surrender 95.1 million
shares valued at $13.8 billion at the time with the understanding
that, over time, they would recoup that value, the report noted.
Some were recouped in compensation for both men to the tune of $3.6
billion in the last financial year, the report relayed.
===========
M E X I C O
===========
KUO SAB: S&P Cuts ICR to 'BB-' on Rising Leverage, Outlook Stable
-----------------------------------------------------------------
S&P Global Ratings lowered its global scale issuer credit and
issue–level ratings on the Mexico-based conglomerate Kuo S.A.B.
de C.V. to 'BB-' from 'BB' and its national scale issuer credit
rating to 'mxA-' from 'mxA'.
S&P said, "The stable outlook for the next 12 months reflects our
view that Kuo's leverage will remain around the 3x-4x area while
the company maintains an average EBITDA margin of about 9.5%. We
expect a gradual return to historical levels for raw materials
costs for the pork meat segment. However, we continue to expect a
low-price, low-demand environment for the chemicals segment."
Kuo's operating performance has been declining in the first three
quarters of 2023: It reported, year on year, a 15% revenue decrease
and a 37% EBITDA decrease. The chemicals segment (which accounted
for about 32% of total revenue) fueled the top-line decrease, as it
saw a 43% decline in revenue year on year stemming from lower
volume and application prices amid a global oversupply of Asian
products. Kuo's EBITDA decline can also be attributed to the
chemicals segment, which saw EBITDA fall 77% on lower styrene and
butadiene prices as well as lower sale volume in applications,
coupled with a negative effect on the devaluation of inventories
for $358 million.
S&P said, "Despite our view that there will be continued operating
pressure on the chemicals segment driven by a low-price, low-demand
environment, we expect the company will slightly mitigate these
effects with higher value–added applications and the development
of compostable applications, allowing the company to increase
prices. As a result, we expect an 8.5% decrease in the company's
overall revenue in full-year 2023 and a 2.0% increase in 2024. We
also expect EBITDA margins for the group of about 8.5% and 10.5% in
each of the next two years, respectively."
In the first three quarters of 2023, the pork meat segment, which
represents approximately 45% of total revenue, saw a 10.7% drop in
EBITDA year on year, mainly caused by high corn prices that peaked
at $8 per bushel in 2022. This drop in EBITDA, coupled with the
negative operating performance of the chemicals segment, will
worsen the company's leverage--to 4.5x at the end of fiscal year
2023. However, S&P expects corn prices to gradually return to
$4.50-$5.50 per bushel in coming years. As a result, we expect
inventories to be purchased at the current low prices, and that
will support a recovery in the pork meat segment's EBITDA
generation. This will have a positive effect on leverage, where it
will reach 3.4x, but it won't be enough for leverage to reach
levels below 3.0x.
Kuo had a strong cash position of about 1.94 billion Mexican pesos
(MXN) as of Sept. 30, 2023. In addition, its liquidity benefits
from MXN5.2859 billion revolving committed credit lines (five-year
tenor). Therefore, despite our expectation that Kuo will have
reverse factoring facilities of about MXN1.860 billion and cash
flow of about MXN4.268 billion for the next 12 months--owing to an
increase in raw materials prices and the negative effect of last
year's prices on inventories--the company has enough cushion to
withstand challenging economic cycles. S&P said, "Moreover, we
believe the company will continue with its prudent financial
policy. As a result, we only expect capital expenditures of about
MXN1.8 billion in 2023 and MXN1.5 billion in 2024 (excluding the
company's Herdez and Dynasol segments), mainly for maintenance
capex and dividend payments of MXN481 million in 2023 and MXN529
million in 2024, according to the company's net income results."
=================
N I C A R A G U A
=================
NICARAGUA: Economy Remains Resilient Amidst Multiple Shocks
-----------------------------------------------------------
A staff team from the International Monetary Fund (IMF), led by Ms.
Alina Carare, visited Managua during November 6-17 for the 2023
Article IV Consultation. The team met with Finance Minister Ivan
Acosta, Central Bank President Ovidio Reyes, other senior
officials, and representatives from banks, free trade zones, and
the international community.
Nicaragua's economy has remained resilient in the face of multiple
shocks, supported by appropriate economic policies, substantial
buffers, and multilateral support. After a very strong rebound in
2021, the economy grew at a steady pace since 2022 on the back of
private consumption and exports. Real GDP is expected to grow by 4
percent in 2023, inflation to slow down, and the fiscal position of
the central government to maintain a small surplus and healthy
government deposits. Remittances are projected to reach about 28
percent of GDP at end-2023, double their end-2021 level, driven by
the rapid increase of Nicaraguan emigrants. The record-high
remittances, coupled with sustained exports, are supporting a
turnaround in the current account balance to a surplus of about 4
percent of GDP in 2023. These foreign exchange inflows and
sustained FDI, along prudent macroeconomic policies, contributed to
a rapid accumulation of gross international reserves to US$5
billion by end-October (or about 6 months of imports, excluding
maquila).
Economic growth is expected to continue next year and over the
medium term, albeit at a slower rate than average. In 2024 and over
the medium term, real GDP is projected to grow by about 3½
percent, supported primarily by private consumption. These
projected growth rates remain below historical averages (2000-17)
of 3.9 percent, given the cautious recovery in investment, limited
approved new official financing lower and lower labor contribution
to growth due to recent emigration. The external and fiscal
positions are assessed to be sustainable under the baseline
scenario, given the current policy mix and financing plans.
This positive outlook is accompanied by balanced risks. On the
upside, real GDP growth might be higher than projected due to a
more sustained recovery in domestic demand, including investment,
and stronger remittances than projected, especially in the near
term. On the downside, a deterioration of the terms of trade, or a
more severe global downturn than currently incorporated into the
baseline scenario could result in lower exports and remittances
growth. Economic activity and social outcomes could be vulnerable
to natural disasters, given Nicaragua's high exposure and economic
dependence on climate sensitive sectors. In the political
environment, stricter and wider international sanctions, could
affect negatively the economic outlook.
The mission supports the authorities' plans to continue prudent
macroeconomic policies, to maintain resilience and a clear and
predictable economic management, while supporting medium-term
growth. The multi-year fiscal consolidation envisaged by the
authorities at the central government level is expected to continue
to support external stability and reserves' accumulation. The
mission supports the authorities' decisions to continue adjusting
the rate of crawl of the exchange rate (from 2 percent to 1 percent
in January 2023, and to 0 percent from 2024 onwards) and emphasizes
the need to remain vigilant and monitor developments to adjust
monetary and exchange rate policy accordingly. The mission also
welcomes the authorities' decision to introduce new instruments in
local currency (Córdobas) with longer maturities (up to one year)
to better manage domestic liquidity. The mission supports the
authorities' efforts to sustain medium-term growth through
investing in infrastructure. The mission recommends the following
growth-supporting measures: (i) increasing formal employment and
human capital, (ii) developing capital markets, and (iii) enhancing
the business climate by strengthening government institutions and
contract enforcement, property rights, and insolvency resolution
framework.
Nicaragua continues to strengthen fiscal consolidation. The fiscal
policy stance for 2024 is appropriate and the mission welcomes the
authorities' commitment to strengthen the fiscal position and
safeguard fiscal sustainability. In 2024, the public sector is
expected to continue to maintain a small deficit at the
consolidated level, as the state-owned enterprises increase
investment and deficits. Over the medium term, a sustainable
approach to fiscal policy is expected to continue, to reduce public
debt—which is currently about 50 percent of GDP. The mission
supports the authorities' efforts to address the structural
imbalances of the state-owned enterprises and social security
accounts, and enhance buffers given the country's vulnerability to
natural disasters. In this respect, the mission recommends better
targeting subsidies and reallocating current expenditures to
continue to maintain adequate levels of social and capital spending
in the medium term, reduce poverty, and support growth.
While banks are well-capitalized and liquid, the resilience of the
financial sector could be further enhanced. Bank deposits continue
to grow, surpassing their pre-crisis aggregate level (measured in
Córdobas), while credit to the private sector is also growing
solidly. Non-Performing Loans (NPLs) have declined to 1.2 percent
by end-September 2023. The level of distressed assets also declined
with the improvement in economic activity, but remains significant
(7.9 percent). The mission recommends increasing the level of
provisions for distressed assets and supports the authorities'
efforts to ensure that sound lending practices are preserved by
activating countercyclical buffers, as needed, and increase the
minimum payments for credit cards. The mission encourages the
authorities to align the crisis preparedness framework with best
international practices, to obtain complete data for credit and
savings cooperatives, and to expand their oversight if needed,
prioritizing the largest ones. The authorities should also continue
monitoring FX risks and strengthen risk mitigation measures.
The authorities should continue strengthening the effective
implementation of the AML/CFT framework by continuing to work with
GAFILAT. Nicaragua has worked with FATF to align its AML/CFT
framework with international standards, resulting in the removal of
Nicaragua from the "grey list" in 2022, and is working to follow up
on FATF recommendations to strengthen the effectiveness of the
framework. The Financial Intelligence Unit (UAF) has made strong
efforts to update the National Risk Assessment. All authorities are
coordinating with UAF for the next mutual evaluation round to
ensure that they focus their efforts on the higher risk reporting
entities. Moreover, regulations for the not-for-profit
organizations (NPO) Law 1115 were amended to include a graduation
of penalties imposed on them. On the other hand, in the past year a
large share of NPOs were closed. The FATF standards require a
risk-based approach to trigger such decisions if using the AML/CFT
framework. The mission recommends the proper application of the
AML/CFT framework, in line with the FATF recommendations.
The mission commends the authorities' efforts to improve fiscal
transparency and urges that these efforts be sustained. The
authorities remain committed to publishing the external audit
reports on the use of all COVID-19 funds; a second report covering
the execution from June 2021 until December 2022 is expected to be
published by end-November 2023. The Comptroller General Office has
taken steps to strengthen the spending oversight of the use of
public funds; yet increased efforts are needed to ensure risk-based
audits and the publication of audit reports of the central
government and SOEs. The authorities continue to expand the
publication and coverage of fiscal reports, including the audit of
financial statements of three of the largest state-owned
enterprises for 2021 and 2022, and a second fiscal risks report in
May 2023. The mission strongly supports the authorities' efforts to
develop a standardized manual for consolidation of the financial
statements and audit reports of the central government,
decentralized institutions, and public companies, and expand the
coverage and publication of public finance statistics, including
frequency and timeliness.
The government has taken steps to implement transparency related
norms and enhance oversight of public funds, and, at the same time
major efforts are needed to strengthen anti-corruption and
governance frameworks and their effective application, in
particular the rule of law. Progress has been made in the
implementation of the Law of Access to Public Information. To
increase the law's effectiveness, the government should assign one
agency or body with comprehensive oversight over implementation.
The Comptroller General Office has introduced a digital platform to
collect asset declarations of public officials and has made
significant progress in collecting asset declarations of
politically exposed persons through this platform. The mission
recommends strengthening the anti-corruption framework and its
effectiveness by: (i) publishing the asset declarations of
politically exposed persons, (ii) implementing risk-based
assessments of these declarations, (iii) and enacting whistleblower
protection regulations. To ensure that the anti-corruption and
governance frameworks are effective, and property rights, contract
enforcement, and investments are protected properly, the government
and the Judicial system should strengthen the rule of law by
guaranteeing adequate, effective, and fair administrative and
judicial recourse to legal proceedings which have consequences for
property rights.
The mission welcomes the authorities' intentions to continue
implementing technical assistance recommendations, especially on
improving the quality and consistency of statistics, as statistics
are critical to assess risks, better formulate policies, and
improve business confidence.
The IMF Executive Board is expected to hold Nicaragua's Article IV
Consultation in early 2024. The mission expresses its sincere
thanks to the authorities for their warm hospitality, cooperation,
and candor, and other Nicaraguan and international counterparts for
the frank dialogue.
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S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Latin America is a daily newsletter
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Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2023. All rights reserved. ISSN 1529-2746.
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