Americas: Brazil’s Petrobras to cut output, investments amid COVID-19

Sectors: oil and gas
Key Risks: economic risks; frustration of process

In Brazil, state-owned Petrobras announced plans to cut crude oil production, investment spending and refined-product output to mitigate the impact of COVID-19 and of plummeting oil prices. On 26 March the firm stated that it would cut output by 100,000 bpd and slash investment by around a third to US$8.5bln. It also said it would draw US$700m from revolving credit lines on top of the US$8bln announced the previous week. The company’s overall breakeven price for oil output reportedly stands at US$25 per barrel. Should oil prices continue to fall, the firm will likely be forced to announce revisions of its business plan which could affect its divestment programme. Further short-term adjustments to the current five-year business plan, which includes US$20bln to US$30bln in divestments between 2020 and 2024, should be expected.

Asia-Pacific: Australia announces US$79.86bln stimulus; North Korea conducts another launch

Sectors: all
Key Risks: business and economic risks

On 30 March Australian Prime Minister Scott Morrison announced a US$79.86bln stimulus package, including wage subsidies, to mitigate against the impact of COVID-19 and quarantine measures on jobs and the economy. It is the third package of support the government has announced – with the previous two amounting to around US$50bln in business and economic support measures, while the Reserve Bank of Australia (RBA) has also opened the taps to emergency lending. Despite the relatively large packages announced to date, further stimulus measures are likely. COVID-19 risks are not the only ones facing the region, as South Korea and Japan ring alarm bells over North Korea’s increased testing of ballistic missiles over the past month. Pyongyang said that Washington has no intention of resuming nuclear talks and that the country plans to unveil “a new strategic weapon” soon.

Eurasia: Ukraine considers IMF-mandated reforms; Taliban-Afghan government talks stumble

Sectors: all
Key Risks: economic risks; political stability; security

On 30 March Ukraine’s legislature is due to consider IMF-mandated reforms to unlock a US$8bln support package. However, on 29 March Speaker Dmytro Razumkov stated that banking and land rights laws – both key requirements for unlocking IMF aid – would not be debated. Failure to pass the bills and receive the support package raises the likelihood of Ukraine defaulting by September as its embattled economy will further struggle amid the COVID-19 pandemic. President Volodomyr Zelensky’s team has become increasingly fractured in recent months, and the votes could be postponed. In Afghanistan, on 28 March Taliban spokesman Zabuhullah Mujahid announced that the group would not negotiate with the team put forward by President Ashraf Ghani. Ghani may revise the list of negotiators, something his rival Abdullah Abdullah has called for, but the prospect of constructive talks at present is very low.

Europe: ‘Coronabond’ disputes in the EU; tensions in Kosovo

Sectors: all
Key Risks: political instability

The coming week is likely to see partial shutdowns of wide sectors of the economy enacted in recent weeks in response to the COVID-19 pandemic extended through the end of April across Europe. Within the EU tensions will ratchet up over calls to issue bonds backed by all union members, dubbed ‘coronabonds’, as the Netherlands and Germany continue to oppose the move and instead have said the bloc’s southern members such as Greece and Italy should rely on amended funding available from the European Stability Mechanism. Away from COVID-19, there is a risk of limited violence in Kosovo after its government collapsed on 25 March with the main party in the outgoing coalition, the nationalist-populist Vetevendosje, saying the US was behind the move to enable a land swap with Serbia, which Washington denies.

MENA: Unity government talks in Israel; Beirut in creditor consultations; Libya war escalates

Sectors: all
Key Risks: credit risks; political instability; civil unrest; war on land

Israeli Prime Minister Benjamin Netanyahu and former opposition leader Benny Gantz will continue attempting to form a unity government after a surprise reversal of Gantz’s position which fractured his opposition bloc. Pre-existing rifts will be hard to navigate but Netanyahu may remain premier for now. Lebanon ostensibly began creditor consultations on 27 March after defaulting on a US$1.2bln Eurobond on 9 March and subsequently announcing it would stop paying all US$30bln maturing Eurobonds. A simultaneous restructuring of the central bank and sovereign balance sheets may be needed to prevent a wider banking crisis. The Libyan National Army (LNA) will further escalate its assault on Government of National Accord (GNA) forces in Tripoli in advance of the one-year anniversary of the LNA’s ‘Flood of Dignity’ operation on 4 April and as backers are distracted by the COVID-19 pandemic.

Sub-Saharan Africa: Moody’s downgrades sovereign credit rating two notches to junk status

Sectors: all
Key Risks: business and economic risks

On 27 March, Moody’s cut South Africa’s long-term foreign-currency and local-currency issuer ratings from Baa3 to Ba1 and kept its outlook negative, making it the last of the three major agencies to move the sovereign credit rating into ‘junk’ status after S&P and Fitch did so in 2017. In its rating rationale, Moody’s stated it did not expect current government policies to address economic and fiscal challenges effectively. The move came after the economy plunged back into recession in Q4 2019 and after Finance Minister Tito Mboweni’s annual budget speech in February revealed a significant deterioration of the fiscal outlook, which coupled with a 21-day lockdown to curb COVID-19 will likely prolong the recession into Q2. The downgrade will accelerate an ongoing sell-off of South African assets. Borrowing costs are set to increase, further aggravating the government’s fiscal struggles.