“There were only three full notch upgrades from all raters in the first quarter of 2009, all in Latin America, set against 22 notch downgrades,” said the research firm in a statement. Half of the downgrades were in Europe, with many focused on central and eastern Europe because of current account deficits and bank refinancing needs.
IHS Global Insight says the refinancing needs in the region amount to $400 billion (£273 billion): “Whether these funds can be found in the market, or whether the lack of credit rollovers will encourage some painful imbalance reduction even with external official support, remains the key question.”
The firm picks out Russia’s rating reversal by Standard & Poor’s after many years of upgrades, noting that the world’s eleventh largest economy has suffered from capital flight leading to depleted foreign exchange reserves, non-sovereign loan redemptions and the collapse in energy and commodity demand. Armenia, Azerbaijan, Moldova and the Ukraine also faced downgrades.
The three upgrades were to sovereign debt from Belize, Chile, and Uruguay, and resulted from all three improving solvency through taking fiscal action to reduce debt ratios. This overcame negative pressure from falling external demand and commodity prices. Chile proved especially resilient, thanks to using past external surpluses to launch its fiscal stimulus programme.
In terms of outlook, 33 negative actions were taken in the first quarter, with no positive actions and a third of negative actions in Europe.
“The outlook pattern would suggest there is still a greater probability of three times more downgrades than upgrades … over the 12 months,” said IHS Global Insight.
However, some hope was evident in a finding that “there are early signs of a modest revival in emerging market bond issuances” after Poland, Slovenia and Turkey successfully launched new issues.
Government bond yields continue to rise