bnp - energy price shock scenarios 31oct2014

This publication is classified as non-objective research

David Spegel Global Head of EM Sovereign & Credit Strategy London +44 207 595 8195

1

31 October 2014 www.GlobalMarkets.bnpparibas.com

Energy price shock scenarios: Impact on EM ratings, funding gaps, debt, inflation and fiscal risks

The stronger US dollar is having an inverse impact on dollar-denominated commodity prices, including oil. This will affect emerging market (EM) credit quality in various ways. We analyse the impact of a crude oil price shock for debt repayment risks for 32 EM oil producers and 53 importers under various scenarios.

The implications of reduced recycled petrodollars has significant ramifications forfinancial markets, loan markets and Treasury yields. In fact, we estimate that EM energy exporters will post their first net drain on global ‘savings’ (USD8bn) in eighteen years.

Our country-by-country analysis addresses changed industrial production costs, theeffects of improved household consumption given consumer demand elasticitiesprevalent across countries, trade gains and losses as well as the impact of tax receiptsand oil and gas subsidies on fiscal balances.

While most EM economies will benefit from lower energy import costs they will export less to slower growing oil producing countries. So, oil prices at USD 80/bbl will provesomewhat negative for EM overall, shaving a forecast 0.4pp from EM GDP growth in 2015.The current account surplus will fall 0.6pp to 0.9% of GDP and the EM budget deficit will drop by 0.60pp to -2.7%. Asia and EM Europe look to fare best from a fiscal and economicperspective, while the Middle East and CIS will fare worst.

Oil and gas exporting EMs account for 26% of total EM GDP and 21% of external bonds. For these economies, the impact will be on lost fiscal revenue, lost GDP growth and the contribution to reserves of oil and gas-related export receipts. Together, these will have a significant effect on sustainability and liquidity ratios and as a consequence are negative for dollar debt-servicing risks and credit ratings.

We calculate that oil and gas subsidies will amount to USD 394bn (1.18% of collective GDP) this year across 85 EMs. Lower costs will provide some offset for the fiscal and repayment risks associated with falling energy prices. In addition to Venezuela, we identify 12 other EMs (including Saudi Arabia, Egypt, Iraq, Algeria and Ecuador) which could fully make annual external debt service payments and yet still be left with a sizeable annual surplus were they to fully reform their oil and gas subsidies.

Overall EM credit quality will not be impaired. But, a sustained USD 80/bbl oil price wouldpush Middle East and CIS credits down a half-notch, while lifting EM Europe by a half-notch. Here, the Czech Republic, Slovakia and Slovenia will see the best upgradepotential, with Turkey next. Bulgaria is a laggard, as lower energy costs will not benefitconsumption or corporate profits so much. Asia would benefit most, enjoying a full ratings notch upgrade, with Korea and Singapore faring best.

Markets are forward looking and the oil shock may already be priced in. We examinemarket activity since 30 June 2014 for 55 sovereigns and assess appropriate valuations under various oil-shock scenarios. Gabon, Angola and Azerbaijan appear ‘rich’, in a sustained USD 80/bbl environment. Slovenia, Ivory Coast, Kenya and Croatia are ‘cheap’.

It is important to stress that our analysis does not account for potential fiscal or monetarypolicy adjustments as a result of changed energy costs and GDP growth. The following analysis is based on EM Strategy research estimates and forecasts and does notnecessarily reflect the view of BNP Paribas fundamental analysts.

I. Defining the scope of the issue and implications for recycled petro dollars (2-4)

II. Energy exporters

a. External Funding Gap and debt repayment risk analysis (pages 5-7)

b. Oil revenues, fuel subsidies, breakeven prices and government budgets (page 8)

c. Oil and gas subsidies (pages 8-10)

d. Impact on inflation and growth for energy exporters (pages 11-13)

III. Net importing EMs: Oil price scenarios and economic impact (pages 14-15)

IV. The big picture: Impact on EM as a whole (pages 16-17)

V. The impact of oil volatility on EM credit ratings (pages 18-21)

VI. Have markets appropriately priced in the risks? (pages 22-24)



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Whatever the reason, whether a function of supply, demand or political risks, oil prices

plummeted in Q3 2014 and remain volatile. Theories related to the price plunge vary widely:

some argue it is an additional means for Western allies in the Middle East to punish Russia.

Others state it is the result of a price war between Opec and new shale oil producers. In the

end, it may just reflect the traditional inverted relationship between the international value of the

dollar and the price of hard-currency-based commodities (Figure 6). In any event, the impact of

the energy price drop will be wide-ranging (if sustained) and will have implications for debt

service costs, inflation, fiscal accounts and GDP growth.

Have you noticed a reduction of financial markets liquidity? Outside from the domestic economic impact within EMs due to the downward oil price shock,

we believe that the implications for financial market liquidity via the reduced recycling of petro

dollars should not be underestimated. Because energy exporters do not fully invest their export

receipts and effectively ‘save’ a considerable portion of their income, these surplus funds find

their way back into bank deposits (fuelling the loan market) as well as into financial markets and

other assets. This capital has helped fund debt among importers, helping to boost overall

growth as well as other financial markets liquidity conditions.

Last year, capital flows from energy exporting countries (see list in Figure 12) amounted to

USD812bn (Figure 3), with USD109bn taking the form of financial portfolio capital and

USD177bn in the form of direct equity investment and USD527bn of other capital over half of

which we estimate made its way into bank deposits (ie and therefor mostly into loan markets).

Of course, these economies were also received capital, so the net benefit

The recycling of petro-dollars has benefited financial markets liquidity conditions. However, this

year, we expect that incremental liquidity typically provided by such recycled flows will be

markedly reduced, estimating that direct and other capital outflows from energy exporters will

have declined by USD253bn YoY. Of course, these economies also receive inward capital, so

on a net basis, the additional capital provided externally is much lower. This year, we expect

that net capital flows will be negative for EM, representing the first net inflow of world ‘savings’

(USD8bn) for the first time in eighteen years. This compares with USD60bn last year, which

itself was down from USD248bn in 2012. At its peak, recycled EM petro dollars amounted to

USD511bn back in 2006. The declines seen since 2006 not only reflect the changed global

environment, by also the propensity of underlying exporters to begin investing the money

domestically rather than save. The implications for financial markets liquidity - not to mention

related downward pressure on US Treasury yields – is negative.

Figure 1: Impact of oil price at USD 80/bbl on 2015 forecast fundamentals

Figure 2: Impact of oil price at USD 80/bbl on EM credit ratings (‘1’ = one notch)

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CIS Middle East Africa Global EM

Ratings in CIS fare worst, unless oil prices remaing below USD85/bbl, in which case it is the Middle East. Asia ex- China looks best on the ratings front.

Source: BNP Paribas strategy desk analysis and forecasts Analysis reflects impact of oil at USD 80/bbl averaged over 3Y compared with its prior average of USD 105/bbl. Oil price standardised at Brent in all analyses. Based on 85 EM economies.

Source: BNP Paribas strategy desk analysis

The impact of the energy price drop will be wide-ranging and will have implications for credit ratings and risk premiums

The implications for financial market liquidity via the reduced recycling of petro dollars should not be underestimated

For the first time in 18 years, we expect EM energy exporters will be net importers of world ‘savings’. They will no longer be adding incremental demand for US Treasuries and FM assets, thereby removing an element downward pressure on UST yields as well as FM liquidity.



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Figure 5: Annual net exported ‘savings’ by EM energy exporters USDbn

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On a net basis, we expect that recycled petro money into global bank lending markets and financial markets will drop by USD68bn YoY.

For the first time in eighteen years, we estimate that energy exporting EMs will be net importers of capital over the next two years, assuming oil prices remain depressed.

Source: BNP Paribas strategy desk analysis and forecasts

Defining the scope of the issue Emerging market net exporters of oil and gas represent 11% of world GDP (Figure 6), 26% of

EM GDP and 9% of gross outstanding EM external debt (Figure 7). EMs for which oil and gas

are significant domestic industries, but are still net importers, represent a further 22% of EM

GDP. Together with the net exporters, this means oil and gas producing EMs account for nearly

half of EM GDP. As related export receipts provide an important source of hard currency

revenue to service debt and build central bank reserves, the fall in the crude oil price threatens

servicing capacity and consequently the credit ratings of a significant proportion of EMs.

That said, it is worth bearing in mind that over half of EMs stand to benefit from reduced energy

costs which will provide a boost to household disposable income. Furthermore, note that 91% of

outstanding external debt (including EM tradable bonds) relates to economies that are net

importers of oil and gas. Thus, most EMs debtors will benefit from a boost to current account

balances, which will improve debt servicing potential.

This picture is different when isolating external bonds only (Figure 9). With the heavy reliance

on debt capital markets for funding, typical of many energy net exporters, the picture for

marketable hard currency bonds is somewhat less positive. As seen in Figure 9, USD 213bn

(8%) of outstanding securities are related to oil exporting sovereigns and USD 329bn (13%) to

energy-producing corporate issuers. This means that 21% of the external bond universe faces

negative oil-price-related credit pressure. Were we to add the 4% metals and commodities

corporate sector (which is typically driven by similar dynamics), than the proportion increases to

a quarter of marketable debt.

Figure 3: EM energy exporter outward capital flow USDbn Figure 4: EM energy exporter C/A balances USDbn

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CIS Asia -ex Japan Middle East Latin America

2014f outward portfolio flows 2014f outward direct investment

2014f other capital flows YoY estimated decline

The recycling of petro-dollars has benefited financial markets liquidity conditions. However, this year, we expect that financial, direct and other capital outflows from energy exporters will have declined by USD253bn YoY.

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The declining Current Account surpluses among energy exporters indicates that petro dollar recycling will be reduced.

Source: BNP Paribas strategy desk analysis and forecasts Source: BNP Paribas strategy desk analysis and forecasts

… but the bulk of EMs will enjoy a boost to disposable income with 74% of EMs’ current accounts benefiting, improving debt servicing potential

Oil and gas producing EMs make up 48% of EM GDP and 20% of global GDP

The drop of crude prices will have a negative impact on the ratings momentum of several EMs …



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Figure 6: Value of USD and oil prices Figure 7: World GDP breakdown (2013)

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WTI USD/bbl (lhs) DXY trade weighted dollar (rhs)

The improved international value of the US dollar is having an inverse impact on dollar denominated commodity prices,

including oil.

Developed57%

EM Oil producers but net importers

9%

EM Oil & Gas exporters

11%

EM Energy importers

23%

USD8.3tr

USD17tr

USD43tr

USD6.8tr

DXY scale inverted. Source: Bloomberg Source: World Bank and BNP Paribas strategy desk

Figure 8: EM gross external debt outstanding (% of total EM external debt)

Figure 9: Universe of external bonds by sector (for end Q3 2014)

Oil producer but net importers

30%

Energy importers

62%

Oil & Gas exporters

8%

USD3.9tr

USD2.5tr

USD649bn

Sovereign oil&gas net importers

24%

Sovereign oil&gas net exporters

8%

Energy13%Metals &

commodities4%

Bank/finance27%

Utilities4%

Telecom4%

Real estate4%

Consumer3%

Soft com&agric

2%

Construction2%

Transportation

2%

Other3%

USD703bn

USD638bn

USD329bn

USD213bn

Source: National sources and BNP Paribas strategy desk Source: BNP Paribas strategy desk

Figure 10: USD 80bbl: lost exports as percentage of current account receipts and GDP

Figure 11: Cost per barrel USD/bbl (finding plus lifting cost)

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% C/A receipts % GDP

Lower cost Upper cost Avg cost

Arctic 115.0 122.0 118.5Brazil Ethanol 63.0 69.0 66.0Central and South A 29.0 35.0 32.0Deepwater Offshore 54.0 60.0 57.0EU Biodiesel 106.0 113.0 109.5EU Ethanol 98.0 105.0 101.5Middle East Onshore 10.0 17.0 13.5North Sea 46.0 53.0 49.5Oil Sands 89.0 96.0 92.5Former Soviet Union 18.0 25.0 21.5Russia Onshore 15.0 21.0 18.0US Ethanol 80.0 87.0 83.5US Shale Oil 70.0 77.0 73.5WAF Offshore 38.0 44.0 41.0

Source: BNP Paribas strategy estimates Source: Reuters



5


Energy exporters: External Funding Gap and debt repayment risk analysis

Determining the impact on EM debt repayment and general economic risks related to energy

price volatility is complicated by the fact that finding and lifting costs vary depending on the

quality of crude, the extraction method and its location. These are summarised in Figure 11

which we use in our analysis in Figure 12. The table also shows the percentage of offshore

production as this is often one of the most costly to explore and lift. Figure 10 ranks EM

economies by lost export revenues as a percentage of current account receipts (CAR) and

shows that Iran, Iraq and Angola will suffer the greatest export losses relative to 2014 forecast

export receipts. Still, the impact on GDP may not necessarily correspond to the ranking (Figure

10) as energy production does not always enjoy similar weights among more diverse and

closed economies.

Figure 10 reveals the economies that are most likely to suffer reduced export earnings resulting

from a decline of oil prices from the USD 105/bbl averaged in recent years to USD 80/bbl.

However, it does not properly address the risks associated with debt repayment. We attempt to

better reflect these in Figure 15. Here, we show our expectation of the current account balance

under a USD 80/bbl oil price scenario, the lost export revenue associated with the oil price

decline (Column A) and the expected external funding gap (B) under that assumption. This

includes total payments on currently maturing long-term debt (CMLTD), short-term debt

principal, and interest on LT and ST debt as well as the expected current account balance

(CAB) under the prior USD 105/bbl oil price assumption. In the following Column C, we show

the external debt service (EDS). This represents the amount of principal payments on CMLTD

as well as interest on ST and LT debt (the figure does not include ST debt principal). We view

reserves (D) as the available hard currency insurance funds available in the country.

Subsequent columns (E, F, G and H) represent various risk ratios.

Figure 12: Lost export revenue analysis Key oil-related statistics (most recent available) Cost of production USD/bbl Oil profits (ex-tax) Lost export revenue USDbn

Proven reserves

(million bbl)

Oil produced '000/bpd

Oil capacity '000/bpd

Oil exported '000/bpd

Oil imported '000/bpd

Onshore costs

Offshore costs % offshore

105 90 80 70 90 80% of GDP

% of total exports

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Algeria 12,200 1,125 1,200 1,097 6 35.00 0.00 28.76 22.60 18.49 14.38 6.01 10.02 4.71 14.68 14.02Angola 10,470 1,750 1,870 1,750 0 35.00 40.00 68.57 42.55 32.96 26.57 20.18 9.59 15.98 12.87 22.56 22.37Argentina 2,805 505 -- 91 0 45.00 0.00 11.07 8.30 6.46 4.61 0.50 0.83 0.14 0.98 1.16Azerbaijan 7,000 871 -- 821 0 21.50 0.00 26.55 21.78 18.60 15.42 4.50 7.50 10.19 21.75 10.50Bahrain 125 48 -- 48 256 25.00 0.00 1.40 1.14 0.96 0.79 0.26 0.44 1.34 2.12 0.61Brazil 13,150 2,225 -- 619 344 66.00 52.00 80.90 31.69 28.71 20.58 12.46 0.83 3.09 0.14 0.67 5.35Brunei 1,100 122 -- 122 0 23.00 100.00 3.65 2.99 2.54 2.09 0.67 1.11 1.96 8.74 1.56Colombia 2,200 968 -- 778 0 42.97 0.00 21.93 16.63 13.09 9.56 4.26 7.10 1.88 12.10 9.94Ecuador 8,240 559 556 413 154 42.97 0.00 12.67 9.60 7.56 5.52 2.26 3.77 4.02 14.80 5.28Egypt 4,400 625 -- 85 49 35.00 40.00 60.00 15.29 11.87 9.59 7.31 0.47 0.78 0.29 3.13 1.09Gabon 2,000 309 -- 225 0 40.00 100.00 7.34 5.64 4.51 3.39 1.23 2.06 10.70 21.04 2.88Ghana 660 98 -- 33 32 0.00 40.00 94.99 2.40 1.86 1.50 1.14 0.18 0.30 0.62 2.23 0.42Iran 154,600 2,800 3,500 2,445 16 35.00 0.00 71.59 56.25 46.02 35.79 13.40 22.33 6.08 36.47 31.26Iraq 141,400 3,100 3,650 2,390 0 35.00 0.00 79.26 62.28 50.95 39.63 13.09 21.82 14.61 23.72 30.55Ivory Coast 100 37 -- 32 50 40.00 100.00 0.88 0.68 0.54 0.41 0.18 0.29 0.92 2.27 0.41Kazakhstan 30,000 1,573 -- 1,406 120 21.50 52.50 10.00 46.19 37.57 31.83 26.08 7.70 12.84 5.54 14.72 17.97Kuwait 104,000 2,890 3,250 1,395 0 25.00 23.00 7.00 84.59 68.76 58.20 47.65 7.64 12.74 7.25 11.37 17.83Libya 48,010 500 1,550 500 0 35.00 40.00 15.00 12.65 9.91 8.08 6.25 2.74 4.57 6.97 11.87 6.39Malaysia 4,000 521 -- 269 161 25.00 40.00 38.39 14.13 11.27 9.37 7.47 1.47 2.46 0.78 1.06 3.44Mexico 10,260 2,497 -- 1,460 0 38.31 63.00 75.00 43.93 30.25 21.13 12.01 8.00 13.33 1.06 3.59 18.66Nigeria 37,200 2,200 2,400 2,200 0 40.82 67.12 52.45 40.49 28.43 20.40 12.36 12.05 20.09 3.85 21.47 28.12Oman 5,500 983 -- 705 0 25.00 0.00 28.72 23.34 19.75 16.16 3.86 6.44 8.35 11.45 9.01Qatar 25,380 727 780 727 0 25.00 23.00 90.00 21.72 17.74 15.08 12.43 3.98 6.64 3.28 52.27 9.29Russia 80,000 10,530 -- 4,720 16 15-21 35-70 3.00 330.63 272.94 234.48 196.02 25.86 43.10 2.06 8.37 60.34Saudi Arabia 267,900 9,600 12,500 6,880 0 25.00 40.00 23.00 268.41 215.82 180.75 145.69 37.69 62.82 8.39 16.69 87.95T&T 728 81 -- 75 70 42.97 76.42 95.00 0.90 0.45 0.16 -0.14 0.41 0.69 2.48 5.35 0.96Tunisia 425 62 -- 62 4 35.00 40.00 30.00 1.56 1.22 0.99 0.76 0.34 0.57 1.21 3.25 0.80UAE 97,800 2,800 300 2,142 0 27.00 40.00 55.00 72.46 57.12 46.89 36.66 11.74 19.56 4.86 5.30 27.38Uzbekistan 594 70 -- 0 0 25.00 0.00 2.05 1.66 1.41 1.15 0.00 0.00 0.00 0.00 0.00Vietnam 4,400 336 -- 188 0 45.00 100.00 7.35 5.51 4.29 3.06 1.03 1.72 1.01 1.33 2.40Yemen 3,000 129 -- 175 0 25.00 0.00 3.78 3.07 2.60 2.12 0.96 1.60 3.96 23.90 2.24Venezuela 297,600 2,471 3,000 1,645 0 39.45 76.42 5.00 57.49 43.95 34.93 25.90 9.01 15.02 2.07 16.37 21.03

Totals 1,377,247 53,112 35,499 1,277 35.00 40.00 19.00 1,394.08 1,112.30 918.31 724.32 191.93 321.59 2.71 8.97 451.25

Italicised production costs represent estimates. Brazil oil production costs are for onshore ethanol.

Source: OPEC, EIU, IEA, National sources and BNP Paribas strategy estimates



6


The simplest measure of the potential cost related to cheaper oil is the ratio of lost export

revenue as a percentage of available reserves. Here, Gabon appears the most negatively

affected, followed by Venezuela, Ecuador and Kazakhstan (Column E in Figure 15).

Column F reveals the extent (nominal USD bn) to which reserves are able to provide a buffer

against next year’s total external funding gap, given the lost revenues assumed in our USD

80/bbl oil price scenario. The net amount is normalised versus GDP in Column G. This will need

to be funded by additional loan/bond issuance, FDI, financial portfolio flows, ST debt and other

capital flows.

Column H reveals an alternate risk measure using 2015 external debt service needs

(Column C) versus the total external funding gap. We prefer this measure due to the heavy

distortion resulting from using ST debt in the external funding gap, and countries in Figure 15

are ranked using this measure: the ones at the top are ‘least at risk’ while the ones at the

bottom are ‘most at risk’. (We have not calculated the external funding needs for Angola, Libya

and Brunei which we show at the bottom of the ranking.)

Column H shows that the implications of potential lost hard currency revenues are more

negative for Kazakhstan, Ivory Coast, Ecuador and Gabon, more easily seen in Figure 14.

Venezuela is actually sixth from the bottom with lost revenues and debt payments exhausting

reserves without any external funding. Other EMs, including Argentina, Egypt and Nigeria, will

retain positive foreign currency assets after accounting for lost exports and external debt

service. The best positioned are Malaysia, Trinidad and Tobago and Russia. None of these

would need to tap external markets for funds, although they would see a drain on their hard

currency resources.

Figure 13: Lost export revenue as a percentage of reserves

Figure 14: Incremental external funding required

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Relative to reserves, lost export revenue at USD80/bbl looks worse for Gabon, Venezuela and Ecuador...

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D-A+B % of GDP D-A+C % of CAR

Adequate resourcesForeign funding required

...But, a more appropriate assessment of risk would be to examine lost export revenue relative

to the ability of an economy to raise hard currency revenue to meet its 2015 external refunding

requirement.

Assumes drop from USD 105/bbl average to USD 80/bbl in 2015

Source: BNP Paribas strategy estimates

See Figure 15 for corresponding codes. ‘CAR’ = Current Account Receipts

Ranked by (Reserves – Lost Revenue & Debt Service)/CA Receipts

Source: IMF and BNP Paribas strategy estimates

Lost revenue relative to reserves gives a quick view of the crisis relative to external insurance resources …

… while a better analysis ranks risk by external debt service payments



7


Figure 15: 2015 forecast external funding risk analysis (USD bn) with oil at USD 80/bbl versus USD 105/bbl (ranked by Column H)

A B C D E F G H

C/A bal @ USD80/bbl

Lost export

revenue

Total external funding required

External debt

service (USDbn)

Reserves recent

Lost revenue%Re

servesD-A+B (in USDbn)

D-A+B % of GDP

D-A+C % of CAR

Algeria -9.20 10.02 -0.94 -0.56 193.99 5.16 183.03 77.92 244.07Saudi Arabia 33.11 62.82 17.47 -13.21 749.10 8.39 703.75 91.54 166.33Brazil -89.93 3.09 -184.84 -72.68 374.01 0.83 186.08 8.18 93.33Iran 3.84 22.33 20.61 -0.86 87.14 25.62 85.42 19.69 61.55T&T 12.17 0.69 0.29 -0.42 10.82 6.36 10.42 37.90 75.53Russia 33.41 43.10 -60.32 -83.00 454.70 9.48 351.28 17.07 48.30Malaysia 14.72 2.46 -38.48 -9.65 127.30 1.93 86.37 25.98 36.58Colombia -20.84 7.10 -41.24 -18.31 44.14 16.09 -4.20 -1.05 23.89Mexico -35.63 13.33 -149.17 -62.37 187.80 7.10 25.30 1.92 22.54Nigeria -3.65 20.09 12.12 -1.09 46.41 43.29 38.43 6.64 20.45Ghana -5.26 0.30 -7.57 -1.19 5.24 5.69 -2.63 -6.82 19.83Egypt -9.80 0.78 -18.72 -4.84 16.90 4.59 -2.60 -0.93 17.80Azerbaijan 2.48 7.50 7.54 -2.69 16.66 45.00 16.70 21.56 17.06Oman -2.14 6.44 -1.69 -0.87 18.64 34.55 10.51 13.42 16.22Iraq -7.61 21.82 9.88 -4.59 42.60 51.23 30.66 11.81 15.98Argentina -3.49 0.83 -22.26 -11.90 27.87 2.98 4.78 0.96 15.01Tunisia -4.85 0.57 -13.05 -3.12 7.18 7.91 -6.44 -12.97 13.75Qatar 34.97 6.64 7.25 -16.67 42.47 15.63 43.08 19.36 13.61Kuwait 51.75 12.74 39.29 -6.52 34.83 36.57 61.38 34.46 11.26UAE 24.66 19.56 -6.40 -22.41 73.00 26.79 47.04 11.01 6.44Gabon -1.53 2.06 0.13 -0.36 2.35 87.49 0.43 1.90 -0.75Ecuador -4.70 3.77 -4.71 -3.93 6.69 56.38 -1.80 -1.78 -2.92Bahrain 0.99 0.44 -1.56 -2.62 2.18 20.09 0.19 0.58 -3.14Venezuela -9.14 15.02 -16.07 -11.12 21.34 70.39 -9.75 -1.92 -5.17Ivory Coast -1.78 0.29 -2.87 -1.78 0.75 39.24 -2.41 -6.57 -8.08Kazakhstan -10.77 12.84 -22.78 -25.15 27.74 46.28 -7.87 -3.57 -9.75Angola 3.38 15.98 31.72Libya 4.57 107.62

Brunei 1.11Totals -8.21 296.61 -478.10 -381.89 2,621.83 11.31 1,847.12 16.11 46.81

‘CAR’ = Current Account Receipts

A. Represents lost export revenue due to crude price decline from H1 2014 average from USD 105/bbl to USD 80/bbl. No assumption is made for sensitivity of domestic crude price basket to global prices. Assumes no change of volumes.

B. External bonds and loans and ST debt due in 2015 plus current account balance.

C. External bonds and loan principal and interest and ST debt interest payments (not principal)

D. Most recent central bank reserves.

"D-A-B" = column ’D’ minus ‘A’ minus ‘B’. This is the additional amount of external financing required due to reduced export profit.

Source: IMF, National sources and BNP Paribas strategy estimates and forecasts



8


Oil revenues, breakeven prices and government budgets

Aside from the external public and corporate debt repayment risks associated with the balance

of payments dimension outlined in the section above, volatility of energy prices has implications

for government budgets, corporate profits, inflation and economic growth.

Among economies where oil revenues account for more than 50% of budget revenues (Figure

16 and Figure 20 for details), in the main, breakeven oil prices for a balanced account exceed

USD 100/bbl. The budgets of Iraq (97%), Bahrain, Libya, Saudi Arabia (90%) and Kuwait (83%)

are heavily reliant on oil and gas receipts. However, budget deficits are not overly large in these

cases and so there is probably capacity to finance the oil price decline, adjust expenditure or

raise alternative sources of revenue.

In the case of Venezuela, because oil-related revenues account for just 61% of the budget,

prices need to be significantly higher to balance the anticipated USD 51bn shortfall next year.

Indeed, prices would need to be at USD 198/bbl in order for oil prices alone to fully balance the

forecast 2015 budget. Even were oil revenues 100% of budgetary income, prices would still

need to be about USD 160/bbl in order to produce a balanced budget. Similarly, the breakeven

price of oil is high in Colombia (USD 165/bbl) and Mexico (USD 241/bbl), where oil-related

receipts represent 33% of income.

Ranking EMs by forecast 2015 budget balances, as seen in Figure 17, helps to reveal those

with existing budget deficits; those more reliant on oil receipts will face greater funding needs

and negative credit-rating pressure. This is the case for Venezuela, Angola, Bahrain and

Nigeria.

Figure 16: Oil and gas proceeds as percentage of total government revenue and breakeven oil price (USD bbl) needed for a balanced budget

020406080100120140160180200

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Among economies where oil revenues account for

more than 50% of the budget....

...Oil prices mostly need to be higher than

USD100/bbl to contribute to a balanced account.

National oil reference prices standardised to Brent. Source: BNP Paribas strategy desk forecasts

Oil and gas subsidies

Oil and gas subsidies among EM energy producers total around USD 296bn, representing

2.46% of GDP and 9.2% of the sum of the budgets for these economies (Figure 20). These

subsidies were implemented for a variety of reasons and are most prevalent among oil-

exporting economies as these typically have ample oil revenue to finance energy-related

subsidies. Among low-income EMs, these subsidies provide a fiscal tool which more rapidly

benefits households than do other welfare benefits. In other cases, they are a means by which

authorities strive to avoid the transmission of energy price shocks to their economy.

Unfortunately, such policy tools tend to be long lasting as their removal tends to have an equally

rapid negative impact of disposable income, which quickly becomes highly unpopular.

Among oil producing EMs, in the main, prices need to exceed USD 100/bbl for a balanced fiscal account

Economies with a high reliance on oil receipts and with fiscal deficits will be most exposed to negative credit rating risks

Oil and gas subsidies represent over 8% of energy producing EMs’ collective budget



9


Furthermore, the longer subsidies remain in place, the more opposition to their removal

becomes entrenched.

Figure 17: 2015 forecast budget balance/GDP and oil and gas receipts as a percentage of total government revenue

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Among EMs, with existing budget deficits, those more reliant on oil receipts will face greater funding needs and negative credit-ratings pressure.

Oil prices standardised to Brent. Source: BNP Paribas strategy desk forecasts

Although, on a nominal basis, fuel subsidies are highest in Saudi Arabia (Figure 18), the burden relative to the government budget is greatest for Egypt, Iran, Bahrain, Nigeria and Ghana. Consequently, while the oil price decline negatively impacts revenues, there is also a positive impact on expenditure, because of falling subsidy costs. We reflect this in our final fiscal analysis seen in Figure 20.

Some producing EM countries therefore benefit from the oil price fall. Yemen, Egypt and Libya will all benefit from reduced subsidy costs as a result of the oil and gas price declines. Still, the benefits are not enough to lift related budgets into surplus.

Fortunately, the energy price decline will provide EM governments with room to lower subsidy costs. Already, Ghana announced in July that it would cut its GHS85m weekly energy subsidy (after having reinstated it early this year in April). Venezuela has also flagged cuts. Meanwhile, Oman’s government recently stated that it is likely to begin reducing some state subsidies in 2015, according to Minister for Financial Affairs Darwish Al-Balushi. As with many other EMs, Oman has been trying to find a way to reform its costly and often wasteful subsidy system, which is a politically sensitive process. (In our following analysis of the economic cost of oil price shocks, Oman stands out as one of worst impacted from a budget balance perspective.)

Oil and gas subsidies accounted for 16.9% of Venezuela’s budget in 2012, amounting to

USD 24.2bn. We estimate these to have increased to USD 30bn this year. Were these to be

eliminated, the government would be able to fully pay all sovereign and PDVSA debt service for

2015 (totalling USD 11bn) and still be left with USD 19bn to spare. If oil prices were to remain at

USD 80/bbl (Brent), then our estimate of lost export revenue totalling USD 15bn for Venezuela

(seen in Figure 12) suggests that the amount left over would drop to USD 4bn in 2015.

Other countries where fuel subsidy reform would allow government’s to fully fund external debt

service (principal on CMLTD and interest payments on LT and ST debt) include Saudi Arabia

(at the top of the list, left with USD 42.5bn after full external debt payments), Egypt

(USD 16.1bn), Iraq (USD 13.5bn), Algeria (USD 11bn), Iran (USD 8.4bn), Nigeria (USD 5.4bn),

Ecuador (USD 2.7bn) and others in Figure 21.

… a few producing EM countries therefore benefit from the oil price fall

While the oil price decline negatively impacts revenues, there is also a positive impact on expenditure due to lower subsidy costs …

The energy price decline will provide EM governments with room to lower subsidy costs



10


Figure 20: Forecast budget risk analysis for EMs in 2015 (subsidies, oil revenue and breakeven prices) Fiscal implications 2015f Impact of oil delcline on fiscal bal % GDP 2015f budget components in USDbn

Oil&gas production %

of GDPOil&gas % of C/A receipts

Oil&gas contribution to

budget %

Oil & gas subsidies

USDbn

Fuel subsidy %

GDPFuel subsidy %

govt revenue

USD90/bbl USD80/bbl USD70/bbl Revenues Expenditures Balance

Breakeven price to balance budget

Algeria 18.37 63.22 70.00 11.60 4.94 15.19 -2.54 -4.24 -5.94 75.96 79.93 -3.97 118.88Angola 48.53 94.74 79.00 1.65 1.19 9.60 -4.05 -6.75 -9.45 51.47 56.56 -5.09 115.13Argentina 3.88 22.76 7.19 6.31 1.26 5.59 -0.05 -0.09 -0.12 112.23 120.67 -8.44 --Azerbaijan 43.11 96.89 64.00 2.09 2.70 8.91 -2.38 -3.97 -5.56 23.35 24.81 -1.46 112.23Bahrain 5.75 8.90 91.00 3.73 11.64 41.44 -1.55 -2.58 -3.61 7.87 9.69 -1.82 --Brazil 3.75 18.55 3.12 3.95 0.17 0.46 -0.14 -0.24 -0.33 846.84 811.52 35.32 --Brunei 8.24 36.70 -- 0.60 1.06 -- --Colombia 9.27 63.24 15.00 0.47 0.12 0.39 -0.62 -1.03 -1.44 117.59 120.77 -3.19 165.43Ecuador 21.23 84.14 19.00 6.62 6.55 16.58 -0.14 -0.23 -0.32 39.70 43.92 -4.22 214.35Egypt 8.55 96.61 10.00 20.99 7.49 49.27 0.85 1.42 1.99 42.39 71.96 -29.56 --Gabon 52.65 121.21 64.00 0.12 0.55 5.49 -2.20 -3.66 -5.13 5.58 5.82 -0.25 108.43Ghana 9.73 28.08 6.00 1.29 3.35 18.28 0.29 0.49 0.68 8.33 11.29 -2.96 --Iran 24.75 175.41 50.00 9.30 2.14 41.65 -0.34 -0.56 -0.79 38.86 44.04 -5.18 115.18Iraq 45.80 129.24 97.00 18.04 6.95 19.52 -3.94 -6.57 -9.19 91.95 89.89 2.07 103.11Ivory Coast 3.87 10.95 10.00 0.31 0.85 3.04 -0.17 -0.28 -0.39 7.34 8.66 -1.31 --Kazakhstan 27.39 69.15 39.00 1.90 0.86 4.79 -0.88 -1.47 -2.05 39.44 42.07 -2.63 116.79Kuwait 62.23 98.96 83.00 8.26 4.64 8.04 -6.59 -10.99 -15.39 108.45 65.74 42.71 56.01Libya 29.27 49.87 91.00 2.84 4.33 -- 0.00 1.03 0.00 105.00Malaysia 6.01 8.66 14.00 8.30 2.50 11.88 -0.04 -0.07 -0.10 66.16 78.07 -11.91 --Mexico 7.25 25.82 33.00 18.29 1.39 5.90 -0.91 -1.52 -2.12 308.74 349.47 -40.73 241.00Nigeria 14.59 90.19 70.00 6.46 1.12 30.20 -0.21 -0.35 -0.49 21.29 33.38 -12.09 126.59Oman 48.14 67.06 77.00 2.48 3.16 6.64 -4.78 -7.97 -11.16 37.09 38.96 -1.87 111.80Qatar 12.53 219.54 53.00 13.50 6.07 6.52 -1.62 -2.71 -3.79 72.84 62.65 10.18 32.27Russia 19.62 78.42 28.00 24.77 1.20 5.76 -0.66 -1.11 -1.55 427.97 436.16 -8.19 112.64Saudi Arabia 47.89 97.84 90.00 55.69 7.24 20.12 -3.59 -5.99 -8.39 275.37 275.37 0.00 105.00T&T 11.34 24.25 44.00 1.42 5.16 14.92 -1.17 -1.96 -2.74 8.32 8.84 -0.52 144.98Tunisia 4.81 13.66 5.00 -- -- -0.18 -0.30 -0.43 12.64 15.95 -3.31 --UAE 25.13 29.11 40.00 19.26 4.51 13.18 -1.31 -2.18 -3.06 145.39 123.71 21.68 51.73Uzbekistan 4.73 18.01 0.28 11.00 19.36 --Vietnam 6.89 9.98 13.00 0.60 0.32 1.40 -0.38 -0.64 -0.90 43.12 51.67 -8.55 --Yemen 12.26 74.02 63.00 3.65 9.03 -- 0.00 2.15 0.00 105.00Venezuela 18.66 103.25 61.00 30.15 5.94 21.05 -1.61 -2.68 -3.76 142.51 193.55 -51.04 198.18

Totals 17.14 56.82 34.84 295.66 2.46 9.20 -1.00 -1.64 -2.34 3,178.80 3,275.13 -96.33 112.64

All national oil reference prices standardised in Brent terms. Oil and gas contribution to budget: Algeria '11; Angola '11; Argentina taxes profits at 30% and taxes exported oil at 100% when priced above USD 70/bbl (up from USD 42/bbl before 2013); Azerbaijan '11; Bahrain '11; Brazil tax rate 34%; Colombia '13; Ecuador '11; Egypt '10; Gabon '10; Iran '10; Iraq '11; Kazakhstan '10; Kuwait '10; Malaysia '11; Mexico '11; Russia '10; Saudi '11; T&T '11; Tunisia '12; Nigeria '11; Ghana '11; Venezuela includes FONDEN transfers 20% between USD 55-88/bbl, 80% when USD 80-100/bbl, 90% when USD 100-110/bbl and 95% when above USD 110/bbl. Tax of 30% PDVSA production is included; Vietnam '11; Yemen '11

Subsidy numbers exclude electricity and coal subsidies and are for oil and gas subsidy costs only. Subsidies are estimated for 2014 based on related costs specified in 2012 budget IEA data for subsidies data except for Angola, Bahrain, Brazil, Ghana, Ivory Coast, Iran, Oman, Qatar, T&T, Tunisia, Vietnam, Yemen and Kuwait.

2015 forecast (f) budget balance based on USD105/bbl oil price. All analyses assume no FX adjustment.

Impact of oil price declines on fiscal balance as a percentage of GDP includes impact of price changes on subsidy costs.

Source: EM Strategy desk estimates and forecasts

Figure 18: Oil and gas government subsidies

Figure 19: Budget impact of oil at USD 80/bbl and related 2015 forecast fiscal balances (% GDP)

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Fuel subsidy % govt revenue Oil & gas subsidies USDbn

Although on a nominal basis, fuel subsidies are highest in Saudi Arabia, relative to the government budget, the burden is greatest for Egypt, Iran, Bahrain, Nigeria and Ghana...

...Consequently, while the oil price decline negatively impact revenues,

there is also a positive impact on expenditures owed to falling

subsidies costs.

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Forecast 2015 fiscal balance % GDP oil at 80bbl

The contribution of reduced oil revenues to the fiscal account pressures Oman, Angola, Saudi and Iraq most severely.

While the contribution to Venezuela's deficit is relatively less severe, the overall negative balance is nevertheless the worst among EM producers.

For oil & gas subsidies only. Data excludes subsidies for coal and electricity.

Source: IEA, IMF and BNP Paribas strategy desk estimates

Source: BNP Paribas strategy desk estimates



11


Figure 21: 2014 estimate oil and gas subsidies versus 2015 forecast of total public and private external debt service (USD bn)

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In many cases, annual oil and gas subsidy costs are multiples of annual external debt service payments. Since these are typically paid for by the hard-currency revenue earned on energy exports, even a small reduction of subsidies can allow for full funding external debt.

Countries more easily able to service debt via subsidy reform.

Countries requiring more than subsidy reforms (ie more foreign funding).

Source: BNP Paribas strategy desk calculations

Impact on inflation and growth for energy exporters Our growth impact analysis includes the following vectors:

Household consumption benefits: While we recognise that the relationship is not

entirely linear, we use inflation basket weights for ‘transportation’ and ‘household &

utilities’ (shown in the ‘Economic components’ section of Figure 27) as a means to

address the differing demand elasticities prevalent across countries. These act as our

proxy for consumption the consumption basket in order to determine the economic

benefit that would result as lower energy prices improve household disposable income.

This is weighted by the level of domestic consumption relative to the economy, which

we also show in the ‘Economic components’ section of Figure 27.

Reduced industrial production costs: Outside the energy industry, manufacturers

will benefit from falling operating costs. Agriculture will not benefit as much and

services will benefit even less.

Trade gains and losses: Lost trade as a result of lower demand from oil-producing

trade partners will impact both growth and the current account balance. On the other

hand, better consumption from many energy-importing trade partners will provide

some offset. The percentage of each country’s exports to energy producing partners

represents relative to its total exports is used to determine potential lost growth and

CAR due to lower demand from trade partners.

Domestic FX moves are beyond the scope of our analysis. These will be tied to the

level of openness of the economy and the impact of changed demand conditions

among trade partners as well as dollar effects. Neither do we address non-oil related

political risks (eg sanctions) or any fiscal or monetary policy responses to oil shocks.

GDP growth The least impacted oil producing country, from a GDP perspective, is Brazil followed by Mexico,

Argentina, Tunisia and Trinidad & Tobago. The impact on fiscal accounts also appears lower for

these than most other EMs.

Remarkably, the impact of lower oil for Russia’s economic growth is not as severe as might be

expected. Sustained oil at USD80/bbl would see growth slow by 1.8pp to -1.0%. This compares

with the worst hit economies of Angola (where growth is nearly 5.6pp lower at -0.1%), Iraq

(GDP slows to -1.6% from 4.5% growth), Kazakhstan and Azerbaijan (growth falls to -2.7% from

4.0%).



12


For a drop to USD 80/bbl, it can be seen (in Figure 27) that, in some cases, such as the UAE,

Qatar and Kuwait, the negative impact on GDP can be comfortably offset by fiscal stimulus.

These economies will probably benefit from such a policy in which case our ‘model-based’ GDP

growth estimate would represent the low end of the likely outcome (unless a fiscal policy

response is not forthcoming).

Inflation In Figure 27, we use the inflation basket weights associated with household and utilities as well

as transportation to help estimate the impact of the oil price change on inflation. While food

prices vary across EM economic income levels, the housing and utilities and transportation

basket weights are more consistent across income groups (Figure 26). This said, it is interesting

to note that energy price volatility is less meaningful for low income EMs than it is for other

income groups.

Meanwhile, on the inflation front, EM economies will largely benefit from the oil price decline.

Economies with already high inflation rates, such as Brazil, Argentina and Venezuela, will

benefit the most (Figure 23).

Current Account Already sporting a negative CAB/GDP, it is good to see that Brazil’s deficit will not be extended in our USD80/bbl oil price scenario, as can be seen in Figure 25. The impact on Ghana’s deficit is negligible, as is the case with Ivory Coast, Tunisia, Mexico and Colombia.

However, Venezuela’s surplus will be pressured into a slight deficit (-1.82%), requiring greater external funding. Much worse off appears to be Angola, whose healthy surplus (6.2% of GDP in a USD105/bbl oil environment) will be pressured deeply into the red (-4.09%). Gabon, Iraq, Oman and Kazakhstan will all post CAB/GDP deficits. Although Azerbaijan’s CAB will drop nearly 10pp, it will remain in surplus at 3% of GDP.

Figure 22: Oil price change and impact on GDP* Figure 23: Oil price change and impact on CPI inflation

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In some cases - like with the UAE, Qatar and Kuwait - the negative GDP impact can comfortably be offset with fiscal stimulus.

In other cases - as with Oman, Angola, Ghana and Venezuela - the negative fiscal balance will limit the counterbalancing policy choice.

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The inflation decline should benefit economies with already high inflation rates like Brazil, Argentina and Venezuela.

* Reflects the change of GDP growth rates year-on-year due to a decline of Brent oil from USD 105/bbl to USD 80/bbl.Source: BNP Paribas strategy desk

Source BNP Paribas strategy desk calculations

Figure 24: Impact on Current Account Balance/GDP Figure 25: Impact on Budget Balance/GDP

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Impact on GDP Est 2015f fiscal balance/GDP

In some cases - like with the UAE, Qatar and Kuwait - the negative GDP impact can comfortably be offset with fiscal stimulus.

In other cases - as with Oman, Angola, Ghana and Venezuela - the negative fiscal balance will limit the counterbalancing policy choice.

-15

-10

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Impact on fiscal balance New 2015f fiscal balance/GDP

Even with the heavy toll on the budget, Kuwait will still be in good shape.

Fortunately, the fiscal toll for Egypt, Ghana and Tunisia will not be severe given their existing deficits.

* Reflects the change of GDP growth rates year-on-year due to a decline of Brent oil from USD 105/bbl to USD 80/bbl.Source: BNP Paribas strategy desk

Source BNP Paribas strategy desk calculations

Our model-based forecasts do not take into account a potential fiscal policy response



13


Fiscal accounts As evident in Figure 25, even with the heavy toll on the budget, Kuwait will still be in good shape, expected to register a 13% budget surplus next year even were oil prices to remain depressed. The picture is also good for a number of other EMs, like Ghana, Ecuador and Tunisia, where the already highly negative budget deficit will not come under added pressure. Egypt’s fiscal accounts will even benefit from the oil drop.

Unfortunately, the likes of Oman, Angola, Iraq and even Saudi Arabia will see their budget balances forced into deficit or see these extended negatively.

Figure 26: EM inflation basket weights by income group

0

5

10

15

20

25

30

35

40

45

50

Developed EM High income Upper-middle income Lower-middle income Lower income

Although food price shocks are more relevant in EM, particularly among lower income economies, energy price shocks feed through strongly in household utilities and transportation costs. This has greater impact among upper-middle income and high income EMs.

Source: National sources and BNP Paribas estimates

Figure 27: Oil price economic impact scenarios for key forecast 2015 EM credit indicators Inflation weights %

Household &

utilitiesTranspo

rtationAgriculture/GDP

Industry/GDP

Services/GDP

Household consum

% GDP

% exports to energy

credits

GDP growt

h

CAB %

GDP CPIBudget/GDP

GDP growt

h

CAB %

GDP CPIBudget/GDP

GDP growt

h

CAB %

GDP CPIBudget/GDP

GDP growt

h

CAB %

GDP CPIBudget/GDP

Algeria 4.90 16.50 7.20 62.50 30.30 32.89 10.80 3.3 0.3 2.5 -1.7 1.4 -2.3 2.1 -4.2 0.5 -4.0 1.8 -5.9 -0.4 -5.7 1.5 -7.6Angola 6.71 12.51 6.96 37.27 53.46 52.05 4.20 5.5 6.2 7.5 -3.7 2.0 0.0 6.2 -7.8 -0.1 -4.1 5.4 -10.5 -2.2 -8.2 4.5 -13.2Argentina 4.90 16.50 8.10 31.10 60.80 66.68 35.60 0.3 -0.5 25.0 -1.7 0.3 -0.7 20.7 -1.8 0.2 -0.8 17.8 -1.8 0.2 -0.9 14.9 -1.8Azerbaijan 6.71 12.51 5.50 61.40 33.20 42.22 8.40 4.0 12.9 1.5 -1.9 -0.5 7.0 1.2 -4.3 -2.7 3.1 1.1 -5.9 -4.9 -0.8 0.9 -7.5Bahrain 10.14 17.03 0.30 46.90 57.20 38.30 36.70 3.6 4.5 2.9 -5.7 2.9 3.3 2.4 -7.2 2.7 2.7 2.0 -8.3 2.4 2.0 1.7 -9.3Brazil 4.00 18.81 6.10 26.50 67.40 62.62 22.90 1.2 -3.8 6.3 1.6 1.2 -3.9 5.2 1.4 1.2 -4.0 4.5 1.3 1.1 -4.2 3.7 1.2Brunei 10.14 17.03 6.82 36.44 52.62 22.70 1.00 1.7 23.5 1.0 0.0 20.0 0.8 -1.1 17.7 0.7 0.0 -2.3 15.4 0.6Colombia 4.90 15.20 8.90 38.10 53.00 61.01 26.10 4.7 -3.4 2.9 -0.8 4.0 -4.5 2.4 -1.4 3.6 -5.3 2.1 -1.8 3.2 -6.0 1.7 -2.2Ecuador 6.08 13.60 6.80 32.60 62.60 58.96 18.10 4.6 -0.9 3.5 -4.2 2.7 -3.2 2.9 -4.3 1.9 -4.7 2.5 -4.4 1.0 -6.3 2.1 -4.5Egypt 3.58 6.69 14.60 20.50 18.90 81.17 15.80 3.5 -3.2 10.2 -10.6 3.2 -3.4 8.6 -9.7 3.1 -3.5 7.5 -9.2 3.0 -3.6 6.4 -8.6Gabon 4.90 16.50 3.70 62.10 34.10 58.00 18.40 6.1 2.4 3.0 -1.1 1.3 -3.2 2.5 -3.3 -0.7 -6.9 2.1 -4.8 -2.9 -10.6 1.8 -6.2Ghana 5.03 6.51 21.30 29.20 49.50 64.23 13.10 5.9 -11.8 15.1 -7.7 5.3 -12.3 12.7 -7.4 5.2 -12.7 11.1 -7.2 4.9 -13.0 9.5 -7.0Iran 6.71 12.51 8.60 41.10 50.20 45.02 3.20 2.0 6.0 18.0 -1.2 -0.4 2.9 14.9 -1.5 -1.5 0.9 12.9 -1.8 -2.7 -1.2 10.8 -2.0Iraq 6.71 12.51 9.40 59.90 28.20 58.37 7.10 4.5 5.5 3.2 0.8 0.3 0.4 2.7 -3.1 -1.6 -3.0 2.3 -5.8 -3.6 -6.4 1.9 -8.4Ivory Coast 5.03 6.51 28.10 21.40 50.60 73.56 12.80 6.3 -4.0 1.1 -3.6 6.0 -4.6 0.9 -3.8 5.8 -4.9 0.8 -3.9 5.6 -5.3 0.7 -4.0Kazakhstan 4.90 8.40 5.90 41.60 51.30 51.23 17.40 5.2 0.9 6.8 -1.2 2.4 -2.6 5.7 -2.1 1.1 -5.0 5.0 -2.7 -0.2 -7.4 4.2 -3.3Kuwait 10.14 17.03 0.30 48.20 51.50 22.13 7.40 2.8 36.2 3.2 24.1 -1.9 31.9 2.6 17.5 -3.6 29.0 2.2 13.1 -5.4 26.1 1.8 8.7Libya 5.03 6.51 7.20 62.50 30.30 22.88 5.00 16.7 1.4 14.0 15.2 -1.1 11.8 14.4 -2.7 10.3 1.0 13.5 -4.3 8.8Malaysia 4.10 14.90 8.90 42.30 48.80 50.97 9.00 5.2 5.2 3.2 -3.6 4.8 4.6 2.7 -3.6 4.7 4.3 2.3 -3.7 4.5 4.0 1.9 -3.7Mexico 5.19 12.71 4.20 33.60 62.30 67.18 10.50 3.8 -1.7 3.9 -3.1 3.3 -2.4 3.2 -4.0 3.1 -2.8 2.8 -4.6 2.9 -3.2 2.4 -5.2Nigeria 5.03 6.51 31.80 31.70 36.50 72.14 14.70 6.9 2.8 8.6 -2.1 5.3 0.7 7.2 -2.3 4.6 -0.7 6.3 -2.5 3.8 -2.1 5.4 -2.6Oman 4.99 22.19 1.40 48.00 50.60 39.11 9.00 4.2 5.5 2.0 -2.4 -0.2 0.5 1.6 -7.2 -2.0 -2.9 1.4 -10.4 -4.0 -6.2 1.2 -13.6Qatar 12.34 12.03 0.10 82.30 17.60 12.45 3.20 6.9 11.5 3.5 4.6 5.7 9.7 2.8 3.0 5.1 8.5 2.4 1.9 4.5 7.3 2.0 0.8Russia 6.10 12.10 4.00 33.80 62.10 51.99 6.70 0.8 3.7 7.5 -0.4 -0.5 2.4 6.2 -1.1 -1.0 1.6 5.4 -1.5 -1.5 0.7 4.5 -1.9Saudi Arabia 11.00 16.00 2.70 60.40 36.90 29.39 8.20 4.2 12.5 3.0 0.0 -0.1 7.5 2.5 -3.6 -2.0 4.2 2.1 -6.0 -3.9 0.9 1.7 -8.4T&T 10.14 17.03 0.50 15.20 84.30 43.65 9.20 2.6 8.9 4.3 -1.9 1.5 7.3 3.5 -3.1 1.0 6.3 3.0 -3.9 0.4 5.3 2.5 -4.6Tunisia 6.71 12.51 10.60 34.70 54.80 66.87 6.70 3.7 -8.6 5.9 -6.7 3.4 -9.3 4.9 -6.9 3.1 -9.8 4.2 -7.0 2.9 -10.3 3.6 -7.1UAE 10.14 17.03 0.90 51.20 47.90 49.75 13.30 4.5 10.3 2.5 5.1 2.2 7.5 2.0 3.8 1.2 5.6 1.7 2.9 0.2 3.7 1.4 2.0Uzbekistan 6.71 12.51 5.90 41.60 51.30 56.30 19.00 6.4 2.5 13.0 -0.5 6.5 2.5 10.8 -0.5 6.6 2.5 9.3 -0.5 6.6 2.5 7.8 -0.5Vietnam 8.70 8.90 19.60 40.50 39.80 63.17 9.80 5.8 4.7 5.0 -4.6 5.3 4.1 4.2 -5.0 5.2 3.6 3.6 -5.2 5.0 3.2 3.0 -5.5Yemen 5.03 6.51 10.60 34.70 54.80 69.42 16.10 2.2 -6.8 8.5 1.0 -9.1 7.1 0.3 -10.7 6.2 2.2 -0.5 -12.2 5.3Venezuela 5.40 11.20 4.20 30.80 65.00 59.27 5.90 0.5 1.2 63.0 -10.1 -1.0 -0.6 52.5 -11.7 -1.7 -1.8 45.5 -12.8 -2.4 -3.0 38.5 -13.9

Totals 5.7 12.5 7.0 37.7 54.1 55.3 13.4 2.9 2.4 9.2 -0.8 1.6 0.8 7.7 -1.8 1.0 -0.3 6.6 -2.5 0.4 -1.4 5.6 -3.1

USD105/bbl USD90/bbl USD80/bbl USD70/bblEconomic components

“% exports to energy credits “ represents amount of exports to energy exporting nations globally and is meant to determine potential lost growth and CAR due to reduced demand by trade partners. “CAB” = Current Account Balance. All analyses assume no FX adjustment or fiscal policy respone to the impact of oil price changes.Source: EM Strategy desk estimates and forecasts (not necessarily the view of BNP Paribas fundamental analysts)



14


Net importing EMs: Oil price scenarios and economic impact We use similar underlying data to determine the fiscal and economic cost/benefit related to our oil price scenarios (Figure 28). Many net energy-importing economies produce oil, and the economy and fiscal accounts benefit from the sector.

The ouput from our scenario analysis is presented in Figure 29. Here, it can be seen that growth in a number of EM economies will benefit from lower energy costs, with Lithuania, Singapore, Bulgaria, Thailand, Jamaica and Morocco are at the top of the list, with the oil price at USD 80/bbl (Figure 32). Meanwhile, the likes of Estonia, Latvia (Russian trade), Bolivia, Moldova and Cambodia (trade with Vietnam), are likely to benefit least, with Estonia’s CAB revealing some deterioration as reduced exports to Russia more than offset the benefits of lower energy import costs.

Belarus is a bit surprising, as we would have expected Russia-related trade effects (50% of exports are destined to oil states, mostly the Federation) would have taken a greater toll. But the country will seem to benefit from lower import costs (which will significantly improve the CAB) as well as from consumption benefits related to improved disposable income. Still, the fact that Belarus is suggested to see improved growth reveals some of the limitations of the across-the-board analysis we have employed.

Figure 28: Net energy importers: Main economic drivers for energy Domestic production Fiscal implications 2015f Inflation weights %

Region Country

Proven reserves

(million bbl)Produced

'000/bpdExports

'000/bpdImports

'000/bpd

Oil&gas contribution to budget %

Oil & gas subsidies

USDbn

Fuel subsidy %

govt revenue

Household & utilities

Transportation

Agriculture/GDP

Industry/GDP

Services/GDP

Household consum %

GDP

% exports to energy names

Asia -ex Japan Cambodia 0 0 0 0 0.00 0.00 0.00 5.03 6.51 32.20 22.50 39.10 82.30 12.30Asia -ex Japan China 17,300 4,164 33 5,664 2.56 17.44 0.68 5.60 10.00 9.10 47.10 43.80 34.09 14.70Asia -ex Japan Hong Kong 0 0 0 0 0.00 0.00 0.00 0.00 8.07 0.00 7.30 92.60 66.08 15.50Asia -ex Japan India 5,476 772 0 3,272 5.66 40.38 18.62 3.00 5.48 15.20 29.10 55.80 61.77 26.80Asia -ex Japan Indonesia 4,030 825 338 388 7.74 24.20 14.28 6.71 19.10 14.60 46.00 39.40 59.25 12.00Asia -ex Japan Korea 0 0 0 2,590 0.00 0.25 0.07 10.14 17.03 2.40 39.10 48.20 52.04 16.30Asia -ex Japan Mongolia 50 10 0 13 3.76 0.00 0.00 6.71 12.51 16.50 32.30 51.20 49.19 12.80Asia -ex Japan Pakistan 248 60 0 151 2.23 0.00 0.00 5.03 6.51 21.40 23.40 55.10 81.05 20.70Asia -ex Japan Philippines 139 21 20 182 0.64 0.00 0.00 3.20 7.80 14.00 31.20 54.80 73.30 8.40Asia -ex Japan Seychelles 0 0 0 0 0.00 0.00 0.00 5.03 6.51 2.30 38.60 59.10 81.02 12.00Asia -ex Japan Singapore 0 20 0 1,137 0.62 0.00 0.00 0.00 16.00 0.00 27.40 72.60 37.74 18.20Asia -ex Japan Sri Lanka 0 0 0 36 0.00 0.00 0.00 6.71 12.51 12.50 30.30 57.20 66.84 12.40Asia -ex Japan Taiwan 2 22 0 886 0.38 0.00 0.00 0.00 15.34 1.30 29.80 69.30 37.74 15.00Asia -ex Japan Thailand 453 241 32 794 4.61 5.25 6.34 6.71 26.80 10.80 46.30 42.90 53.66 16.60Latin America Bolivia 210 47 0 0 3.49 1.81 10.08 6.71 12.51 14.20 37.70 51.30 59.47 35.70Latin America Chile 150 7 0 170 0.16 0.00 0.00 7.02 14.47 5.50 33.80 52.60 64.04 17.80Latin America Costa Rica 0 0 0 10 0.05 0.00 0.00 8.65 18.19 6.20 22.10 71.60 64.37 13.30Latin America Cuba 124 50 83 165 1.85 0.00 0.00 6.71 12.51 4.20 22.00 72.20 49.16 40.00Latin America Dom Rep 0 0 0 27 0.01 0.00 0.00 6.71 12.51 11.50 20.50 68.00 83.25 0.00Latin America El Salvador 0 0 0 16 0.00 0.11 2.05 7.77 12.02 11.20 29.20 59.60 92.36 5.30Latin America Guatemala 83 10 11 0 1.84 0.00 0.00 7.95 10.92 12.90 24.50 62.60 86.61 13.20Latin America Honduras 0 0 0 0 0.01 0.00 0.00 6.67 9.05 12.20 26.90 60.90 80.99 5.60Latin America Jamaica 0 2 0 23 0.77 0.00 0.00 6.71 12.51 6.20 29.50 64.30 86.35 23.60Latin America Nicaragua 0 0 0 13 0.00 0.00 0.00 6.71 12.51 17.40 26.20 56.40 85.41 8.10Latin America Panama 0 0 0 0 0.00 0.00 0.00 4.90 16.50 5.80 16.40 77.80 62.35 24.50Latin America Peru 579 63 16 100 1.19 0.00 0.00 5.75 14.30 5.90 33.10 52.50 61.44 23.70Latin America Uruguay 0 1 0 39 0.09 0.00 0.00 5.73 10.13 9.70 22.40 68.00 68.71 46.00

Emerging Europe Bulgaria 15 1 0 125 0.04 0.00 0.00 4.70 7.50 6.00 28.20 63.60 63.05 6.20Emerging Europe Croatia 71 12 0 51 0.38 0.00 0.00 4.90 13.00 6.70 27.10 66.20 61.05 5.40Emerging Europe Czech Republ 15 3 0 154 0.03 0.21 0.25 10.14 17.03 2.20 38.90 58.90 50.70 5.10Emerging Europe Estonia 0 11 8 0 0.80 0.11 1.11 4.97 14.26 2.60 26.90 70.50 52.84 12.20Emerging Europe Hungary 27 12 0 115 0.12 0.00 0.00 5.14 15.45 2.80 34.90 62.30 62.85 7.30Emerging Europe Latvia 0 1 0 0 0.06 0.00 0.00 5.10 10.00 3.90 21.50 74.60 62.39 13.50Emerging Europe Lithuania 12 9 2 190 0.43 0.00 0.00 5.50 11.20 4.20 28.50 67.30 64.05 13.40Emerging Europe Macedonia 0 0 0 52 0.00 0.00 0.00 0.00 8.20 12.00 29.30 58.60 68.95 1.80Emerging Europe Moldova 0 0 0 0 0.05 0.00 0.00 5.03 6.51 16.70 20.80 62.60 92.86 29.70Emerging Europe Poland 157 19 4 548 0.14 0.26 0.26 4.62 9.42 3.60 32.80 62.50 60.80 7.70Emerging Europe Romania 600 85 2 122 0.90 0.00 0.00 5.06 7.00 12.60 38.60 51.40 71.53 7.00Emerging Europe Serbia 78 17 0 33 0.69 0.00 0.00 6.71 8.20 12.80 22.50 64.80 77.02 6.40Emerging Europe Slovakia 9 9 0 108 0.19 0.15 0.43 6.34 8.39 2.70 36.50 60.90 57.38 5.40Emerging Europe Slovenia 0 0 0 0 0.01 0.14 0.72 6.97 15.37 2.50 30.80 66.70 57.36 6.90Emerging Europe Turkey 270 46 0 339 0.16 0.86 0.41 7.52 15.54 8.50 25.60 65.90 70.90 18.50CIS Belarus 198 30 0 295 1.63 0.00 0.00 6.71 12.51 7.00 37.00 56.00 49.96 51.90CIS Ukraine 395 43 0 155 1.78 6.16 16.64 2.50 4.70 9.60 32.70 57.70 73.44 36.00Middle East Israel 12 6 0 261 0.11 0.66 0.75 14.40 16.80 2.60 31.60 64.40 56.23 7.40Middle East Jordan 1 0 0 68 0.03 0.00 0.00 6.71 12.51 3.40 30.40 66.20 81.15 31.30

Middle East Lebanon 0 0 0 0 0.00 0.00 0.00 4.90 16.50 4.90 15.30 79.80 71.00 49.60Middle East Syria 2,500 58 152 0 33.75 0.00 0.00 4.90 16.50 17.20 27.00 55.70 59.09 23.10Africa Botswana 0 0 0 0 0.00 0.00 0.00 4.90 16.50 1.90 28.80 59.40 51.22 14.80Africa Kenya 0 0 0 31 0.00 0.00 0.00 5.03 6.51 22.20 16.70 64.40 79.67 12.40Africa Morocco 1 5 0 123 0.20 0.00 0.00 6.71 12.51 17.30 31.30 51.40 59.71 13.90Africa South Africa 15 4 0 385 0.04 0.00 0.00 4.90 16.50 3.10 31.90 65.00 61.21 6.00Africa Zimbabwe 0 0 0 0 0.15 0.00 0.00 5.03 6.51 17.50 24.90 57.40 87.01 5.20

Economic components

All analyses assume no FX adjustment.

Source: EM Strategy desk estimates and forecasts (not necessarily the view of BNP Paribas fundamental analysts)



15


Figure 29: Percentage of total country exports to energy-producing trade partners

0

10

20

30

40

50

60

Be

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Economies with greater trade exposure toward energy producing names will see a greater negative economic impact related to reduced demand among trade partners.

Economies with lower trade exposure toward energy producing names


Figure 30: Net energy importers – Oil price economic impact scenarios

Region Country

GDP growt

hCAB %

GDP CPIBudget/GDP

GDP growt

hCAB %

GDP CPIBudget/GDP

GDP growt

hCAB %

GDP CPIBudget/GDP

GDP growt

hCAB %

GDP CPIBudget/GDP

Asia -ex Japan Cambodia 7.3 -10.4 3.8 -3.2 7.4 -10.4 3.2 -3.2 7.4 -10.4 2.8 -3.2 7.4 -10.4 2.4 -3.2Asia -ex Japan China 7.0 2.2 2.2 -3.1 7.2 2.5 1.8 -3.2 7.3 2.6 1.6 -3.2 7.4 2.8 1.4 -3.3Asia -ex Japan Hong Kong 3.1 2.3 4.0 0.3 3.3 2.3 3.3 0.3 3.3 2.3 2.9 0.3 3.3 2.3 2.4 0.3Asia -ex Japan India 5.5 -2.0 7.2 -5.8 5.9 -1.3 6.1 -5.6 6.2 -0.8 5.3 -5.5 6.4 -0.3 4.6 -5.4Asia -ex Japan Indonesia 5.6 -2.6 6.2 -1.8 5.8 -2.5 5.1 -1.7 5.9 -2.5 4.3 -1.5 5.9 -2.5 3.6 -1.4Asia -ex Japan Korea 3.8 4.8 1.5 0.7 4.1 4.9 1.2 0.8 4.1 4.8 1.0 0.8 4.1 4.8 0.9 0.8Asia -ex Japan Mongolia 8.0 -14.4 12.8 -3.2 8.4 -13.9 10.6 -3.4 8.6 -13.5 9.2 -3.5 8.8 -13.1 7.7 -3.7Asia -ex Japan Pakistan 4.7 -2.6 8.3 -6.8 5.0 -2.3 7.0 -6.8 5.1 -2.1 6.1 -6.9 5.2 -1.9 5.2 -6.9Asia -ex Japan Philippines 6.5 2.6 4.3 -1.6 6.8 2.9 3.6 -1.6 6.9 3.0 3.2 -1.6 7.0 3.2 2.7 -1.6Asia -ex Japan Seychelles 4.6 -11.1 2.9 1.6 4.7 -11.1 2.4 1.6 4.8 -11.1 2.1 1.6 4.8 -11.1 1.8 1.6Asia -ex Japan Singapore 3.7 18.1 1.5 1.4 4.4 19.9 1.2 1.4 4.9 21.1 1.0 1.4 5.3 22.4 0.9 1.4Asia -ex Japan Sri Lanka 7.1 -2.5 4.1 -6.3 7.3 -2.5 3.4 -6.3 7.3 -2.5 2.9 -6.3 7.4 -2.5 2.5 -6.3Asia -ex Japan Taiwan 3.7 10.7 1.5 -1.4 4.3 11.6 1.2 -1.4 4.6 12.2 1.1 -1.4 4.9 12.8 0.9 -1.4Asia -ex Japan Thailand 4.0 1.0 2.3 -2.0 4.8 2.0 1.9 -1.9 5.1 2.7 1.6 -1.9 5.5 3.3 1.3 -1.8Latin America Bolivia 4.0 2.3 6.8 0.1 4.1 2.3 5.6 0.6 4.1 2.3 4.9 0.9 4.1 2.3 4.1 1.3Latin America Chile 3.3 -2.3 4.2 -1.0 3.7 -2.0 3.5 -1.0 3.8 -1.7 3.0 -1.0 4.0 -1.5 2.5 -1.0Latin America Costa Rica 4.1 -5.6 4.6 -5.1 4.4 -5.5 3.8 -5.1 4.5 -5.4 3.2 -5.1 4.6 -5.3 2.7 -5.1Latin America Cuba 3.9 -1.9 5.3 -3.6 4.3 -1.2 4.4 -3.7 4.6 -0.8 3.8 -3.8 4.8 -0.4 3.2 -3.9Latin America Dom Rep 4.6 -3.1 3.3 -2.5 4.9 -2.9 2.7 -2.5 5.1 -2.8 2.4 -2.5 5.2 -2.6 2.0 -2.5Latin America El Salvador 1.8 -5.6 1.2 -3.3 2.1 -5.6 1.0 -3.3 2.1 -5.6 0.9 -3.2 2.2 -5.6 0.7 -3.2Latin America Guatemala 3.5 -2.9 3.5 -2.6 3.7 -3.0 2.9 -2.6 3.7 -3.0 2.5 -2.7 3.7 -3.1 2.1 -2.7Latin America Honduras 3.3 -8.5 6.2 -4.2 3.5 -8.5 5.2 -4.2 3.5 -8.5 4.5 -4.2 3.5 -8.5 3.8 -4.2Latin America Jamaica 1.8 -8.6 8.4 -2.0 2.5 -7.7 6.9 -2.1 2.8 -7.1 6.0 -2.1 3.1 -6.5 5.0 -2.1Latin America Nicaragua 4.5 -11.7 6.1 -1.8 4.8 -11.7 5.1 -1.8 4.8 -11.7 4.4 -1.8 4.8 -11.7 3.7 -1.8Latin America Panama 6.1 -9.3 3.5 -2.5 6.2 -9.3 2.9 -2.5 6.2 -9.3 2.5 -2.5 6.2 -9.3 2.1 -2.5Latin America Peru 5.4 -4.5 3.2 0.1 5.6 -4.3 2.7 0.1 5.7 -4.2 2.3 0.0 5.8 -4.0 1.9 0.0Latin America Uruguay 3.4 -5.4 8.8 -2.4 3.7 -5.1 7.3 -2.4 3.9 -4.8 6.4 -2.4 4.0 -4.6 5.4 -2.4

Emerging Europe Bulgaria 2.0 -0.5 -0.9 -1.4 2.7 0.8 -0.8 -1.4 3.1 1.7 -0.7 -1.4 3.5 2.5 -0.6 -1.4Emerging Europe Croatia 0.5 0.9 0.3 -4.5 0.9 1.4 0.2 -4.5 1.1 1.7 0.2 -4.5 1.3 2.1 0.2 -4.5Emerging Europe Czech Republ 2.5 -1.1 0.5 -2.3 3.0 -0.6 0.4 -2.3 3.1 -0.3 0.3 -2.3 3.3 -0.1 0.3 -2.3Emerging Europe Estonia 3.0 -0.7 1.3 -0.1 3.0 -0.8 1.1 -0.1 3.0 -1.0 0.9 -0.1 2.9 -1.1 0.8 -0.1Emerging Europe Hungary 2.5 2.2 0.2 -3.0 2.9 2.6 0.2 -3.0 3.0 2.9 0.1 -3.0 3.2 3.2 0.1 -3.0Emerging Europe Latvia 3.7 -1.5 0.7 0.1 3.8 -1.5 0.6 0.1 3.8 -1.5 0.5 0.1 3.8 -1.5 0.4 0.1Emerging Europe Lithuania 3.8 -1.9 0.8 -1.6 5.0 0.2 0.7 -1.6 5.7 1.6 0.6 -1.6 6.4 3.1 0.5 -1.6Emerging Europe Macedonia 3.7 -3.6 0.1 -3.0 3.9 -3.4 0.1 -3.0 4.0 -3.4 0.1 -3.0 4.0 -3.4 0.1 -3.0Emerging Europe Moldova 3.3 -5.8 5.5 -1.7 3.4 -5.8 4.6 -1.7 3.4 -5.8 4.0 -1.7 3.4 -5.8 3.5 -1.7Emerging Europe Poland 3.3 -1.6 0.2 -1.6 3.7 -1.1 0.2 -1.6 3.9 -0.7 0.1 -1.6 4.1 -0.4 0.1 -1.6Emerging Europe Romania 3.4 -1.8 1.6 -1.8 3.7 -1.4 1.3 -1.9 3.8 -1.2 1.2 -1.9 3.9 -1.0 1.0 -1.9Emerging Europe Serbia 2.0 -6.3 2.6 -4.1 2.4 -5.9 2.2 -4.2 2.5 -5.6 1.9 -4.2 2.7 -5.3 1.6 -4.2Emerging Europe Slovakia 2.5 0.6 0.4 -2.6 2.9 1.2 0.3 -2.6 3.1 1.6 0.3 -2.6 3.3 2.0 0.2 -2.6Emerging Europe Slovenia 1.0 4.7 1.0 -2.9 1.2 4.7 0.8 -2.9 1.2 4.7 0.7 -2.8 1.2 4.7 0.6 -2.8Emerging Europe Turkey 3.4 -6.0 9.0 -3.0 3.8 -5.8 7.4 -3.0 3.9 -5.6 6.4 -3.0 4.0 -5.5 5.3 -3.0CIS Belarus 2.8 -5.0 16.9 -0.4 2.9 -3.8 14.0 -0.5 3.1 -1.9 12.1 -0.6 3.4 0.0 10.2 -0.6CIS Ukraine 1.2 -4.0 10.8 -4.2 1.5 -3.3 9.1 -3.6 1.7 -2.8 8.0 -3.2 1.8 -2.4 6.9 -2.8Middle East Israel 3.2 2.6 0.8 -2.6 3.7 3.0 0.6 -2.6 3.9 3.3 0.5 -2.5 4.0 3.6 0.4 -2.5Middle East Jordan 4.3 -8.5 3.0 -6.6 5.0 -7.5 2.5 -6.6 5.4 -6.9 2.1 -6.6 5.7 -6.2 1.8 -6.6

Middle East Lebanon 2.6 -6.8 2.8 -10.1 2.8 -6.8 2.3 -10.1 2.8 -6.8 2.0 -10.1 2.9 -6.8 1.7 -10.1Middle East Syria 2.4 -7.3 34.8 -3.5 1.9 -8.7 28.8 -3.7 1.5 -9.6 24.7 -3.9 1.1 -10.5 20.7 -4.0Africa Botswana 5.1 12.6 4.6 1.6 5.3 12.6 3.8 1.6 5.3 12.6 3.3 1.6 5.3 12.6 2.7 1.6Africa Kenya 5.7 -7.1 7.5 -6.2 5.8 -7.1 6.3 -6.2 5.8 -7.1 5.5 -6.2 5.9 -7.1 4.7 -6.2Africa Morocco 4.3 -6.3 1.0 0.0 4.8 -5.7 0.8 0.0 5.0 -5.3 0.7 0.0 5.3 -4.9 0.6 0.0Africa South Africa 2.5 -5.0 6.2 -4.3 3.0 -4.4 5.1 -4.3 3.2 -4.1 4.4 -4.3 3.4 -3.7 3.7 -4.3Africa Zimbabwe 3.4 -37.5 0.0 -4.9 3.5 -37.5 0.0 -4.9 3.4 -37.5 0.0 -4.9 3.4 -37.5 0.0 -4.9

USD105/bbl USD90/bbl USD80/bbl USD70/bbl

All analyses assume no FX adjustment. Source: EM Strategy desk estimates and forecasts (not necessarily the view of BNP Paribas fundamental analysts)



16


Figure 31: Forecast 2015 GDP growth and CAB/GDP ratio with oil at USD 80/bbl

-0.5

0.0

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GDP growth CAB % GDP

Growth for a number of EM economies will benefit from lower energy costs, with Lithuania, Singapore, Bulgaria, Jamaica, Morocco and Thailand at the top of the list. The likes of Estonia, Latvia (owed to Russian trade),

Bolivia, Moldova and Cambodia (due to trade with Vietnam), are likely to benefit least.


The big picture: Impact on EM as a whole Figure 32 presents a collective analysis of oil prices for EM, and the impact on the indicators of an oil price decline from the previous average of USD 105/bbl can be seen more easily in Figure 33.

On the whole, we can say that the fall in oil prices will prove negative, shaving 0.4pp from 2015 EM GDP growth. The collective current account balance will fall 0.58pp to 0.9% of GDP, while the budget deficit will deteriorate by 0.61pp to -2.7%. This probably has the worst implications for EM as an asset class in the credit world.

Energy exporters will fare worst, with growth falling by 1.9pp and their current account balances suffering negative pressure to the tune of 2.69pp of GDP. Budget balances will suffer a 1.67pp of GDP fall, despite benefits from lower subsidy costs. The impact of oil falling USD 25/bbl will be likely to put push the current account balance into deficit, with our analysis indicating a 0.3% of GDP deficit from a 2.4% surplus before. Fortunately, the benefit to inflation will be the best in EM and could help offset some of the political risks from reduced growth.

As might be expected, energy importers will benefit by 0.4pp better growth in this scenario. Their collective current account will improve by 0.6pp to 1.6% of GDP.

The regions worst hit are the Middle East, with GDP growth slowing to 0.6%, which is 3.8pp lower than when oil was averaging USD105/bbl. The regions’ fiscal accounts will also suffer most in EM, moving from a 1.7% of GDP surplus to a 1.9% deficit. Meanwhile, the CAB will drop 5.3pp, although remain in surplus at 3.9%. The CIS is the next-worst hit, from a GDP perspective, with regional growth flat-lined versus 1.5% previously. The region’s fiscal deficit will worsen from 0.7% of GDP to -1.8% and CAB shrink to 0.8% from 3.1% of GDP. Africa’s growth will come in 1.4pp slower at 3.3% while Latam growth will be 0.4pp slower at 2.0%. For Africa, the CAB/GDP ratio will fall by 2.4pp pushing it deep into deficit (-3.4% of GDP).

Some regions benefit, however, with Asia ex-China growing 0.45bpp faster at 5.2% and EM Europe (ex-CIS) growing 0.55pp faster at 3.6%, with the region’s CAB/GDP improving 0.69pp, although remain in deficit to the tune of -2.0% of GDP.

For oil exporters, oil at USD 80/bbl means the collective CAB will fall into a 0.3% of GDP deficit from a 2.4% surplus

…While some regions will benefit including EM Europe and Asia

Growth rates in the Middle East and CIS will suffer most…



17


Figure 32: Impact of oil price (Brent) at USD 80/bbl on key credit fundamentals Inflation weights %

Household &

utilitiesTranspo

rtationAgriculture/GDP

Industry/GDP

Services/GDP

Household consum

% GDP

% exports to energy

credits

GDP growt

h

CAB %

GDP CPIBudget/GDP

GDP growt

h

CAB %

GDP CPIBudget/GDP

GDP growt

h

CAB %

GDP CPIBudget/GDP

GDP growt

h

CAB %

GDP CPIBudget/GDP

Energy export 5.7 12.5 7.0 37.7 54.1 55.3 13.4 3.0 2.4 9.2 -0.8 1.7 0.8 7.7 -1.8 1.1 -0.3 6.6 -2.5 0.5 -1.4 5.6 -3.1Energy-import 6.7 12.5 8.8 39.4 50.9 47.5 16.0 5.5 1.0 3.4 -2.8 5.8 1.4 2.8 -2.8 6.0 1.6 2.5 -2.8 6.1 1.8 2.1 -2.8Asia ex-China 6.6 12.7 10.0 34.0 53.9 56.9 18.0 4.8 2.3 4.5 -2.6 5.1 2.6 3.7 -2.5 5.2 2.9 3.2 -2.5 5.4 3.1 2.8 -2.4China 5.6 10.0 9.1 47.1 43.8 34.1 14.7 7.0 2.2 2.2 -3.1 7.2 2.5 1.8 -3.2 7.3 2.6 1.6 -3.2 7.4 2.8 1.4 -3.3Latam 5.0 15.5 6.1 30.0 63.4 64.1 19.6 2.4 -2.5 11.5 -1.5 2.1 -3.0 9.5 -1.9 2.0 -3.3 8.2 -2.2 1.8 -3.6 6.9 -2.5EM Europe 6.4 12.5 6.2 30.8 62.9 64.8 11.2 3.0 -2.7 3.5 -2.4 3.4 -2.3 2.9 -2.4 3.6 -2.0 2.5 -2.4 3.7 -1.7 2.1 -2.4CIS 5.9 11.4 4.6 35.5 59.7 52.8 10.7 1.5 3.1 7.8 -0.7 0.1 1.7 6.5 -1.3 -0.4 0.8 5.6 -1.8 -1.0 -0.1 4.8 -2.2Middle East 9.6 15.0 4.0 51.5 44.1 41.0 9.2 4.4 9.2 5.9 1.7 1.8 6.0 4.9 -0.5 0.6 3.8 4.2 -1.9 -0.6 1.7 3.5 -3.4Africa 5.0 10.7 16.7 34.0 42.3 64.1 11.7 4.7 -1.0 6.9 -4.0 3.8 -2.4 5.8 -4.6 3.3 -3.4 5.0 -5.0 2.8 -4.3 4.3 -5.4Global EM 6.1 12.3 8.2 38.8 52.0 50.3 15.1 4.6 1.5 5.5 -2.1 4.3 1.2 4.6 -2.5 4.2 0.9 4.0 -2.7 4.1 0.7 3.3 -2.9

USD80/bbl USD70/bblEconomic components USD105/bbl USD90/bbl

Oil price standardised at Brent in all analyses. Based on 85 EM economies. Global and regional data is GDP weighted.

Source: BNP Paribas strategy desk analysis and estimates (not necessarily the view of BNP Paribas fundamental analysts)

Figure 33: Impact of oil price (Brent) at USD 80/bbl on key 2015f credit fundamentals

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GDP growth CAB % GDP CPI Budget/GDP

Oil price standardised at Brent in all analyses. Based on 85 EM economies.

Source: BNP Paribas strategy desk analysis (not necessarily the view of BNP Paribas fundamental analysts)



18


The impact of oil volatility on EM credit ratings

For energy-producing sovereigns, it is largely about lost fiscal revenue, lost GDP growth and the

contribution to reserves of oil- and gas-related export receipts. Together, these will have a

significant effect on sustainability and liquidity ratios. That said, the accumulated benefits of

globalisation, particularly since 2001 – which include various structural reforms, high reserve

levels, fewer FX pegs and better credit fundamentals – leave emerging markets in a strong

starting position. It is also worth bearing in mind that rating agencies strive to see through

economic cycles. In many cases, there is still time for policy adjustments to be made before

downgrades are manifest.

In Figure 35 we present a compilation of key sovereign credit risk ratios (political risk, fiscal,

sustainability and liquidity) for this year across the universe of 90 EMs that we track (on the

Strategy desk). The data are broken down by credit rating and reflect trends, averages and

medians among each rating group and indicator. At the top of Figure 35, we also show the

explanatory strength of each, which reflects their ability to drive credit ratings.

We select those that have the strongest R-Square statistics for our final ratings driver model.

Not surprisingly, considering the high level of subjective components in credit rating models,

political risk statistics have the greatest strength. Surprisingly, GDP growth, its average and its

volatility do not have much power. Public debt to GDP is also surprisingly weak and it is

remarkable how weak the external debt-to-GDP ratio is. Stronger was the external debt to CAR

with the three-year average CAB/GDP ratio the strongest among sustainability indicators.

Among liquidity indicators, external debt over FX reserves was the best. The total external

funding gap (EFG) over reserves was relatively weak, which is not surprising in light of the

distortion provided by high levels of short-term debt, as we have mentioned previously. The

second best liquidity variable is debt service to total current account receipts (CAR).

Figure 34 shows the fit of our selected indicators that best drive EM credit rating. Although

external debt/CAR and the external funding gap (EFG)/GDP appeared valid indicators in Figure

35, auto-correlation effects are likely to have resulted in these variables displaying a counter-

intuitive sign in our first run analysis (Figure 34) and we have therefore removed these in our

final selection of explanatory indicators. This did not seem to have a significant impact on the

explanatory power of the model which runs at nearly 70%.

Figure 34: Important ratings driver analysis First run selected indicators Final selection

Multiple R 0.842 Multiple R 0.837R Square 0.709 R Square 0.701Adjusted R Square 0.694 Adjusted R Square 0.689Standard Error 2.515 Standard Error 2.536Observations 201 Observations 201

Coefs Error T Stat Coefs Error T StatIntercept 9.9364 3.65 2.72 Intercept 9.5646 3.65 2.62Political risk -1.2233 0.23 -5.28 Political risk -1.1659 0.23 -5.05Per Capita GDP 0.9377 0.33 2.84 Per Capita GDP 1.0602 0.33 3.233Y avg CPI avg -1.5353 0.29 -5.39 3Y avg CPI avg -1.5118 0.29 -5.28Fiscal balance/GDP 0.0730 0.05 1.37 Fiscal balance/GDP 0.0973 0.05 1.85Public debt/GDP -0.4700 0.21 -2.26 Public debt/GDP -0.3797 0.20 -1.87Ext Debt/CAR 0.0072 0.00 1.50 3Y Avg CAB/GDP 0.0222 0.03 0.813Y Avg CAB/GDP 0.0334 0.03 1.16 Ext Debt/Rsvs -0.2508 0.19 -1.35Ext Debt/Rsvs -0.4828 0.21 -2.26 Debt Service/CAR -0.5274 0.15 -3.58EFG/Rsvs 0.3229 0.18 1.77Debt Service/CAR -0.5640 0.15 -3.77

Green heading = Underlying indicators have been adjusted for non-linearity Source: BNP Paribas strategy research

We present a list of key sovereign statistics, highlighting their ability to drive credit ratings.



19


Figure 35: 2014 external debt rating indicators

Political risk score

Per Capita GDP CPI avg

3Y avg CPI

GDP YoY

3Y avg GDP YoY

3Y GDP Volatilit

y

Fiscal balance/

GDP

3Y Vol Fiscal

bal/GDP

Public debt/G

DP

Ext Debt/GDP

Ext Debt/C

AR

3Y Avg CAB

/GDP CAB/GDP

Ext Debt/R

svsExt Fund

Gap/RsvsSTD/Rsv

s

Debt Service/R

svs

Debt Service/

CAR

Import cover

(mths)

RSQ 0.39 0.35 0.20 0.30 0.02 0.00 0.02 0.20 0.00 0.08 0.04 0.13 0.20 0.13 0.41 0.10 0.02 0.07 0.26 0.04Beta -2.67 3.47 -0.23 -3.27 0.28 0.10 -0.66 0.42 -0.20 -1.79 -0.03 -0.03 0.20 0.13 -1.93 -2.06 0.00 -0.04 -1.17 0.21Volatility 4.42 3.26 7.34 5.17 4.74 4.67 5.29 7.53 5.33 4.4 26.3 52.2 9.08 10.47 4.3 3.8 21,632 23.1 4.6 4.80

TREND VALUESAAA 2.23 40,770 0.40 0.08 4.04 3.75 0.86 1.83 0.91 31.0 29.2 48.1 8.97 9.68 -13 214 -13,104 16.1 -38 7.35AA+ 2.38 38,411 0.58 0.14 3.96 3.73 0.89 1.34 0.92 32.6 30.6 52.3 7.96 8.66 2 227 -12,124 17.8 -20 7.16AA 2.53 36,052 0.60 0.85 3.87 3.70 0.91 0.86 0.93 34.2 31.9 56.4 6.95 7.65 17 239 -11,143 19.6 -3 6.97AA- 2.67 33,693 0.69 1.56 3.79 3.67 0.94 0.37 0.93 35.9 33.3 60.5 5.94 6.64 32 252 -10,163 21.3 14 6.78A+ 2.82 31,335 1.57 2.28 3.71 3.64 0.96 -0.11 0.94 37.5 34.6 64.6 4.93 5.63 47 265 -9,182 23.0 32 6.59A 2.97 28,976 2.45 2.99 3.63 3.62 0.99 -0.60 0.95 39.2 35.9 68.8 3.92 4.62 62 277 -8,202 24.7 49 6.40A- 3.12 26,617 3.33 3.71 3.54 3.59 1.01 -1.09 0.96 40.8 37.3 72.9 2.91 3.60 76 290 -7,221 26.4 66 6.21BBB+ 3.26 24,258 4.21 4.42 3.46 3.56 1.04 -1.57 0.97 42.4 38.6 77.0 1.91 2.59 91 302 -6,241 28.1 84 6.02BBB 3.41 21,899 5.09 5.13 3.38 3.53 1.07 -2.06 0.97 44.1 39.9 81.1 0.90 1.58 106 315 -5,260 29.9 101 5.83BBB- 3.56 19,541 5.96 5.85 3.29 3.51 1.09 -2.54 0.98 45.7 41.3 85.3 -0.11 0.57 121 327 -4,279 31.6 118 5.63BB+ 3.71 17,182 6.84 6.56 3.21 3.48 1.12 -3.03 0.99 47.3 42.6 89.4 -1.12 -0.44 136 340 -3,299 33.3 136 5.44BB 3.85 14,823 7.72 7.28 3.13 3.45 1.14 -3.52 1.00 49.0 44.0 93.5 -2.13 -1.46 151 353 -2,318 35.0 153 5.25BB- 4.00 12,464 8.60 7.99 3.05 3.43 1.17 -4.00 1.01 50.6 45.3 97.6 -3.14 -2.47 166 365 -1,338 36.7 171 5.06B+ 4.15 10,105 9.48 8.70 2.96 3.40 1.19 -4.49 1.01 52.3 46.6 101.7 -4.15 -3.48 180 378 -357 38.4 188 4.87B 4.29 7,746 10.36 9.42 2.88 3.37 1.22 -4.97 1.02 53.9 48.0 105.9 -5.16 -4.49 195 390 623 40.2 205 4.68B- 4.44 5,388 11.23 10.13 2.80 3.34 1.24 -5.46 1.03 55.5 49.3 110.0 -6.16 -5.50 210 403 1,604 41.9 223 4.49CCC+ 4.59 3,029 12.11 10.85 2.71 3.32 1.27 -5.94 1.04 57.2 50.6 114.1 -7.17 -6.52 225 416 2,584 43.6 240 4.30CCC 4.74 670 12.99 11.56 2.63 3.29 1.29 -6.43 1.04 58.8 52.0 118.2 -8.18 -7.53 240 428 3,565 45.3 257 4.11D 4.88 1,689- 13.87 12.27 2.55 3.26 1.32 -6.92 1.05 60.4 53.3 122.4 -9.19 -8.54 255 441 4,546 47.0 275 3.91

MEDIAN VALUESAAA 1.94 78,744 1.80 2.93 4.10 3.50 0.87 0.70 0.60 105.6 9.3 4.4 18.56 19.88 35 239 20 1.7 0 5.05AA+ 1.58 27,344 1.60 1.77 2.70 2.27 0.75 -1.40 1.01 36.9 57.8 63.3 -0.92 -0.02 51 250 -518 45.5 22 4.90AA 2.90 85,660 3.00 2.73 2.70 4.67 1.50 7.10 2.30 10.0 18.6 24.2 26.78 16.77 15 322 88 25.7 18 3.09AA- 2.84 26,197 2.00 2.53 4.00 3.53 0.91 -1.40 0.65 15.8 21.4 40.6 3.75 4.23 9 93 181 3.7 2 9.09A+ 2.62 23,163 1.60 2.45 3.00 2.77 0.97 -1.75 0.64 37.0 30.0 50.6 0.41 0.37 27 139 0 9.8 6 5.32A 3.01 25,766 2.50 2.37 3.00 3.72 0.62 -2.40 0.79 45.4 30.6 44.2 1.10 1.61 59 223 9 15.6 15 4.24A- 2.61 23,275 0.80 1.80 2.80 3.33 0.55 -1.90 0.42 42.0 33.1 67.0 0.30 -0.14 100 324 0 38.3 22 4.11BBB+ 3.82 16,463 3.80 3.43 2.40 3.77 1.07 -2.40 0.67 41.0 30.1 116.1 0.46 2.45 28 197 0 18.0 9 6.45BBB 3.65 13,188 3.65 4.27 4.35 4.33 0.87 -2.50 0.55 46.8 33.0 89.3 -3.33 -3.58 113 230 -290 39.5 66 5.75BBB- 3.35 15,941 3.50 3.43 3.10 3.37 0.95 -2.30 0.38 39.0 31.5 104.4 -2.78 -2.84 60 221 -301 22.1 57 5.92BB+ 3.66 11,782 4.60 4.77 3.40 3.03 0.85 -3.50 0.42 49.5 58.7 118.3 -5.22 -5.32 104 307 -987 31.0 81 4.18BB 4.20 9,496 3.50 4.37 3.55 3.73 0.72 -3.75 0.50 54.2 35.2 90.9 -1.20 -1.11 94 254 29 28.9 141 5.04BB- 4.05 8,749 3.55 5.33 5.60 5.10 0.52 -3.60 0.82 47.5 40.0 89.4 -3.68 -2.69 132 357 -258 15.2 78 3.50B+ 4.17 9,433 5.30 7.01 5.00 4.77 0.61 -4.60 1.99 49.4 38.5 89.4 -9.41 -8.92 214 457 -240 22.5 350 2.98B 4.67 4,591 5.50 5.00 4.40 4.13 0.66 -4.60 1.42 44.3 36.3 77.0 -8.14 -8.68 184 372 -218 34.9 274 3.31B- 4.22 10,469 8.30 8.53 1.80 2.03 0.49 -7.00 1.50 94.0 41.6 92.8 -6.75 -6.85 361 434 -1,040 41.5 82 2.90CCC+ 5.12 18,194 64.40 42.03 -2.50 1.47 4.05 -12.20 2.06 51.1 13.6 77.0 2.61 1.55 231 464 5,646 16.8 17 2.68CCC 5.19 8,788 11.50 3.93 -6.50 -2.07 3.84 -5.90 1.31 65.0 116.1 190.1 -7.58 -5.61 213 488 -3,612 91.8 94 2.99D 3.66 15,586 18.00 25.73 1.70 0.87 2.05 -1.50 0.32 33.3 23.3 38.6 6.78 6.38 183 378 32 27.2 12 3.38

AVERAGESAAA 2.33 65,974 2.70 3.47 3.25 2.88 0.79 0.75 0.92 71.3 34.4 13.0 10.26 11.15 6 244 420 3.9 1 4.98AA+ 2.69 85,036 2.89 3.17 3.72 4.11 1.38 9.96 1.66 43.7 37.0 36.0 22.99 20.45 16 308 272 19.4 12 4.21AA 3.06 104,099 3.08 2.87 4.18 5.33 1.97 19.16 2.41 16.1 39.6 59.0 35.73 29.74 32 372 125 35.0 24 3.45AA- 2.35 65,876 2.06 2.31 3.71 3.23 1.14 -0.63 1.34 17.9 30.0 54.1 4.61 4.50 18 119 -35,143 17.9 12 9.51A+ 2.51 27,653 1.89 3.09 3.56 3.24 0.67 -1.59 0.79 41.5 26.1 51.0 6.40 13.30 37 175 256 15.1 14 5.75A 2.88 31,883 2.13 1.62 4.34 4.72 0.74 0.06 0.45 45.0 22.6 23.5 5.48 5.31 130 1,132 2,198 14.8 4 2.24A- 3.33 17,011 2.63 2.85 2.83 3.70 1.26 -1.85 0.92 36.1 37.5 78.3 -1.39 -1.48 67 232 -1,230 35.9 64 7.65BBB+ 3.31 22,607 3.40 3.76 3.54 3.64 1.16 -3.16 0.71 46.0 41.6 92.4 -1.12 -0.46 130 373 -387 42.3 78 3.77BBB 3.36 16,244 5.48 5.17 2.40 2.91 0.89 -1.26 0.46 39.3 41.8 115.8 -0.55 -0.73 53 132 -9,937 19.2 44 10.52BBB- 3.59 13,527 4.35 4.82 3.77 3.61 1.20 -2.37 0.52 46.7 46.4 99.6 -0.34 -0.50 93 253 -331 41.6 41 5.62BB+ 3.72 14,024 2.70 3.50 2.03 2.03 0.65 -4.33 0.35 57.1 57.3 123.8 -2.54 -2.51 95 267 2,164 43.3 203 5.34BB 4.54 7,874 4.10 4.59 4.38 4.26 0.77 -3.53 1.04 43.4 42.4 81.1 -2.37 -2.61 126 290 -597 18.7 141 5.52BB- 4.18 8,785 4.64 6.06 4.82 4.71 0.60 -5.08 1.10 56.1 40.3 84.2 -2.54 -1.89 160 336 -18 25.7 117 4.44B+ 3.59 12,511 7.31 7.67 6.14 6.99 1.13 -2.34 2.18 30.4 48.4 98.6 -15.46 -9.62 238 446 -925 44.4 708 3.06B 4.38 8,307 6.46 6.12 4.14 4.47 0.96 -6.74 1.36 63.1 49.2 84.5 -7.59 -7.85 179 382 -1,001 44.1 241 5.90B- 4.54 12,241 22.55 19.65 1.25 1.79 1.41 -6.97 1.49 76.6 46.7 121.1 -3.68 -3.56 350 572 -183 47.9 286 2.64CCC+ 4.48 10,456 23.22 17.66 -1.30 0.60 2.18 -5.41 1.10 62.9 58.2 138.3 -3.86 -3.38 287 502 -2,670 53.7 173 2.91CCC 4.43 8,672 23.90 15.68 -3.85 -0.60 2.95 -3.85 0.70 49.2 69.7 155.6 -4.04 -3.19 224 433 -5,156 59.5 60 3.19

Liquidity ratiosExternal debt sustainabilityFiscal riskWealth & public and political risk

“EFG” = External Funding Gap; “CAR” = Current Account Receipts; “CAB” = Current Account Balance. “STD” = Short Term Debt

Source: BNP Paribas strategy research



20


Figure 36: Three-year sustained crude price shock on regional credit ratings (where ‘1’ = one rating notch)

0.12 0.

34 0.59 0.

80 0.99 1.

25 1.49

0.0

0.2 0.

4 0.6 0.

8 1.1 1.

3

-0.1

1

-0.2

5

-0.4

4

-0.5

2

-0.5

3

-0.7

8

-0.9

8

0.06

-0.1

5

-0.4

3

-0.5

8

-0.6

5

-1.0

0

-1.2

9

-0.1

0

-0.0

1

0.08 0.19 0.30 0.38 0.47

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

US

D10

0/bb

l

US

D95

/bbl

US

D90

/bbl

US

D85

/bbl

US

D80

/bbl

US

D75

/bbl

US

D70

/bbl

Asia ex-China China Latam EM Europe CIS Middle East Africa Global EM

The analysis shows that ratings for the Middle East will be more negatively impacted than CIS when oil prices fall below USD90/bbl. If oil prices fall to USD70/bbl, the region will be downgraded to BB+ as would the CIS.

Asian (ex China) credit ratings stand to benefit most. If oil prices remain at USD80/bbl, the region will be upgraded a full notch to A-.

Source: BNP Paribas strategy research

A regional summary of our analysis of the impact of sustained oil shocks at various prices over a three-year period on credit ratings can be seen in Figure 36 and Figure 37. In the event of a sustained oil price of USD 80/bbl, Asian (ex-China) credit ratings stand to benefit most, with the region marked for a full notch upgrade (0.99 notches) to A3/A-. The country-specific impact on ratings is in Figure 38 and shows that Korea, Singapore and Thailand gain most benefit. Korea would be upgraded two notches, on a[verage, within three years. Thailand would be upgraded by 1.4 notches and, as it already has split ratings (A2/BBB+/BBB+; Moody’s/S&P/Fitch), two-notch upgrades may be more likely to come by the agencies that report later.

Emerging European economies (not including the CIS) are also flagged to benefit from improved credit quality, despite their export exposure to Russia. A sustained oil price of USD 80/bbl would benefit the region’s credit quality by 0.8 notches. The Czech Repbulic, Slovakia and Slovenia would benefit most, with a full rating upgrade. Turkey would closely follow, with a predicted 0.8 notch upgrade. Bulgaria’s ratings are least positively affected, only benefiting from a 0.5 notch upgrade. Although the country is among the least exposed to trade with energy names (only 6.2% of exports), energy spending accounts for only a small proportion of its inflation and consumption basket. Industry accounts for only 28% of GDP. So, the benefits of better disposable income and lower production costs do not translate as strongly into growth.

Our analysis does not account for the effects of sanctions on Russia. It only reflects the credit ratings hit from lower oil revenue (and/or expenditures) on key rating measures. As might be expected for Russia, the impact is negative, with the sovereign rating in store for a 0.6 notch downgrade with oil at USD 80/bbl and a full notch if oil hits USD 60/bbl. Compounded with the likely credit pressure from the country’s reduced access to capital (a key ratings driver), we would probably at least double the ratings-pressure from oil alone. This means a two-notch downgrade if oil drops below USD 75/bbl. Elsewhere in the CIS, Belarus seems to benefit most (after Ukraine). This is surprising, given the strong trade relationship it has with Russia, but seems to be related to the reduced current account costs of lower energy imports and better domestic consumption.

Figure 37: Impact on regional credit ratings from three-year sustained crude price shock (GDP weighted)

Moody's S&P Fitch

Numeric score (avg)*

USD100/bbl

USD95/bbl

USD90/bbl

USD85/bbl

USD80/bbl

USD75/bbl

USD70/bbl

USD60/bbl

Asia ex-China Baa1 BBB+ BBB+ 11.49 0.1 0.3 0.6 0.8 1.0 1.3 1.5 1.9China Aa3 AA- AA- 14.67 -0.4 -0.1 0.1 0.3 0.5 0.8 1.0 1.5Latam Baa3 BBB- BBB- 9.04 0.0 0.0 -0.1 -0.1 0.0 -0.1 -0.2 -0.2EM Europe Baa1 BBB+ BBB+ 11.31 0.0 0.2 0.4 0.6 0.8 1.1 1.3 1.7CIS Baa3 BBB- BBB- 9.44 -0.1 -0.2 -0.4 -0.5 -0.5 -0.8 -1.0 -1.2Middle East Baa2 BBB BBB 10.13 0.1 -0.2 -0.4 -0.6 -0.7 -1.0 -1.3 -1.6Africa Ba3 BB- BB- 6.15 -0.2 -0.3 -0.4 -0.4 -0.5 -0.6 -0.6 -0.7Global EM Baa1 BBB+ BBB+ 11.44 -0.1 0.0 0.1 0.2 0.3 0.4 0.5 0.7

Current ratings Implied credit notch impact ("1" = one ratings notch)

*Numeric ratings score based on 0 – 18 scale where 18 = “AAA”. Source: BNP Paribas strategy research

Asia stands to benefit most, with Korea in store for a two-notch upgrade

Combined with the impact of sanctions, Russia would see a two-notch downgrade, should oil drop below USD 75/bbl.

EM Europe will also benefit, with Czech Republic, Slovakia and Slovenia seeing the best upgrade potential. Not so Bulgaria, where lower energy costs will not benefit consumption or corporate profits as much



21


Figure 38: Impact of three-year crude price shock on credit ratings

Region CountryMoody'

s S&P Fitch

Numeric score (avg)*

USD100/bbl

USD95/bbl

USD90/bbl

USD85/bbl

USD80/bbl

USD75/bbl

USD70/bbl

USD60/bbl

Asia -ex Japan Cambodia B2 NR n/r 4.00 0.1 0.4 0.7 0.9 1.2 1.5 1.8 2.4Asia -ex Japan China Aa3 AA- A+ 14.67 -0.2 0.0 0.2 0.5 0.7 0.9 1.2 1.6Asia -ex Japan Hong Kong Aa1 AAA AA+ 17.33 0.2 0.4 0.6 0.8 1.0 1.3 1.5 2.0Asia -ex Japan India Baa3 BBB-u BBB- 9.00 -0.4 -0.1 0.1 0.3 0.5 0.8 1.0 1.5Asia -ex Japan Indonesia Baa3 BB+ BBB- 8.67 0.0 0.3 0.6 0.8 1.0 1.4 1.7 2.2Asia -ex Japan Korea Aa3 A+ AA- 14.67 0.9 1.2 1.4 1.7 1.9 2.1 2.4 2.9Asia -ex Japan Malaysia A3 A- A- 12.00 0.0 0.0 -0.1 -0.1 -0.1 -0.1 -0.2 -0.2Asia -ex Japan Mongolia B2 B+ B+ 4.67 0.1 0.4 0.7 1.0 1.3 1.7 2.0 2.6Asia -ex Japan Pakistan Caa1 B- n/r 2.50 -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.4Asia -ex Japan Philippines Baa3 BBB BBB- 9.33 0.1 0.3 0.6 0.8 1.0 1.3 1.5 2.0Asia -ex Japan Seychelles n/r NR B+ 5.00 -0.1 0.1 0.3 0.5 0.7 0.9 1.1 1.4Asia -ex Japan Singapore Aaa AAAu AAA 18.00 0.5 0.7 1.0 1.2 1.4 1.7 2.0 2.4Asia -ex Japan Sri Lanka B1 B+ BB- 5.50 -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.4Asia -ex Japan Taiwan Aa3 AA-u A+ 14.67 0.3 0.5 0.8 1.1 1.3 1.6 1.9 2.4Asia -ex Japan Thailand Baa1 BBB+ BBB+ 11.00 0.0 0.3 0.7 1.0 1.2 1.6 1.9 2.5Asia -ex Japan Vietnam B1 BB- BB- 5.67 -0.2 -0.3 -0.4 -0.5 -0.4 -0.6 -0.7 -0.8Latin America Argentina Caa1 SDu WD 1.00 0.0 0.0 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1Latin America Bolivia n/r BB BB- 6.50 0.2 0.5 0.9 1.1 1.3 1.7 2.1 2.6Latin America Brazil Baa2 BBB- BBB 9.67 0.4 0.4 0.3 0.3 0.3 0.3 0.2 0.2Latin America Chile Aa3 AA- A+ 14.67 0.0 0.3 0.6 0.8 1.1 1.4 1.7 2.2Latin America Colombia Baa2 BBB BBB 10.00 -0.2 -0.3 -0.5 -0.6 -0.6 -0.8 -1.0 -1.2Latin America Costa Rica Ba1 BB BB+ 7.67 -0.2 0.1 0.3 0.6 0.8 1.1 1.3 1.8Latin America Cuba Caa2 1.00 0.0 0.2 0.5 0.7 0.9 1.2 1.5 2.0Latin America Dom Rep Ba2 B+ B 5.33 0.0 0.2 0.4 0.7 0.9 1.1 1.3 1.8Latin America Ecuador Caa1 B+ B 3.67 -0.3 -0.4 -0.6 -0.7 -0.8 -1.0 -1.1 -1.4Latin America El Salvador Ba3 BB- BB- 6.00 -0.1 0.2 0.4 0.6 0.9 1.1 1.4 1.8Latin America Guatemala Ba1 BB BB 7.33 -0.1 0.2 0.4 0.6 0.8 1.0 1.3 1.7Latin America Honduras B3 B n/r 3.50 -0.1 0.1 0.4 0.6 0.8 1.0 1.3 1.7Latin America Jamaica Caa3 B- B- 2.33 0.0 0.2 0.5 0.7 0.9 1.2 1.5 1.9Latin America Mexico A3 BBB+ BBB+ 11.33 -0.2 -0.3 -0.5 -0.5 -0.5 -0.8 -1.0 -1.2Latin America Nicaragua B3 n/r n/r 3.00 -0.2 0.1 0.3 0.5 0.7 0.9 1.2 1.6Latin America Panama Baa2 BBB BBB 10.00 -0.1 0.1 0.3 0.5 0.7 1.0 1.2 1.6Latin America Peru A3 BBB+ BBB+ 11.33 -0.1 0.2 0.4 0.6 0.9 1.1 1.3 1.8Latin America T&T Baa1 A n/r 12.00 0.2 -0.1 -0.4 -0.5 -0.5 -1.0 -1.3 -1.7Latin America Uruguay Baa2 BBB- BBB- 9.33 -0.1 0.1 0.4 0.6 0.8 1.1 1.3 1.8Latin America Venezuela Caa1 CCC+ B 2.67 -0.4 -0.6 -1.0 -1.1 -1.1 -1.7 -2.1 -2.5Emerging Europe Bulgaria Baa2 BBB- BBB- 9.33 -0.2 -0.2 -0.2 -0.2 -0.3 -0.2 -0.2 -0.3Emerging Europe Croatia Ba1 BB BB 7.33 0.0 0.2 0.4 0.5 0.7 0.8 1.0 1.3Emerging Europe Czech Republic A1 AA- A+ 14.33 0.1 0.4 0.8 1.1 1.4 1.8 2.2 2.8Emerging Europe Estonia A1 AA- A+ 14.33 0.1 0.4 0.7 1.0 1.3 1.6 2.0 2.6Emerging Europe Hungary Ba1 BB BB+ 7.67 0.0 0.2 0.3 0.5 0.6 0.8 1.0 1.3Emerging Europe Latvia Baa1 A- A- 11.67 0.1 0.4 0.7 1.0 1.2 1.6 1.9 2.5Emerging Europe Lithuania Baa1 A- A- 11.67 0.0 0.3 0.5 0.7 0.9 1.2 1.5 1.9Emerging Europe Macedonia n/r BB- BB+ 7.00 -0.1 0.1 0.2 0.3 0.5 0.6 0.7 1.0Emerging Europe Moldova B3 n/r NR 3.00 -0.2 0.0 0.3 0.5 0.7 0.9 1.1 1.6Emerging Europe Poland A2 A- A- 12.33 0.0 0.1 0.3 0.5 0.6 0.8 0.9 1.2Emerging Europe Romania Baa3 BBB- BBB- 9.00 0.0 0.2 0.4 0.5 0.7 0.9 1.1 1.5Emerging Europe Serbia B1 BB- *- B+ 5.00 -0.1 0.0 0.2 0.4 0.6 0.8 1.0 1.3Emerging Europe Slovakia A2 A A+ 13.33 0.1 0.4 0.7 1.0 1.3 1.6 1.9 2.5Emerging Europe Slovenia Ba1 A- BBB+ 10.33 0.1 0.4 0.8 1.1 1.3 1.7 2.0 2.7Emerging Europe Turkey Baa3 BB+u BBB- 8.67 -0.1 0.1 0.4 0.6 0.8 1.1 1.4 1.9CIS Azerbaijan Baa3 BBB- BBB- 9.00 -0.3 -0.8 -1.7 -2.0 -2.2 -3.2 -4.1 -5.0CIS Belarus B3 B- n/r 3.00 -0.1 0.2 0.4 0.6 0.8 1.1 1.3 1.8CIS Kazakhstan Baa2 BBB+ BBB+ 10.67 -0.4 -0.7 -1.1 -1.3 -1.4 -1.9 -2.3 -2.8CIS Russia Baa2 BBB- BBB 9.67 -0.1 -0.3 -0.5 -0.5 -0.6 -0.8 -1.0 -1.3CIS Ukraine Caa3 CCC CCC 1.00 0.2 0.5 0.9 1.2 1.5 1.9 2.3 3.0CIS Uzbekistan n/r n/r n/r n/r 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Africa Algeria n/r n/r n/r n/r -0.6 -1.0 -1.5 -1.9 -2.3 -2.8 -3.2 -4.0Africa Angola Ba2 BB- BB- 6.33 -0.5 -1.0 -1.4 -1.9 -2.3 -2.8 -3.2 -4.1Africa Botswana A2 A- n/r 12.50 1.0 1.2 1.5 1.7 1.9 2.1 2.3 2.8Africa Egypt Caa1 B- B- 2.67 -0.2 -0.1 0.0 0.0 0.0 0.2 0.3 0.4Africa Gabon n/r BB- BB- 6.00 -0.6 -1.1 -1.9 -2.2 -2.3 -3.3 -4.0 -4.9Africa Ghana B2 B- B 3.67 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4Africa Ivory Coast B1 n/r B 4.50 -0.2 -0.2 -0.3 -0.3 -0.3 -0.4 -0.5 -0.5Africa Kenya B1 B+ B+ 5.00 -0.3 0.0 0.2 0.4 0.6 0.8 1.0 1.4Africa Morocco n/r BBB- BBB- 9.00 0.0 0.2 0.4 0.6 0.8 1.1 1.3 1.8Africa Nigeria Ba3 BB- BB- 6.00 -0.1 -0.3 -0.5 -0.6 -0.6 -0.9 -1.1 -1.3Africa South Africa Baa1 BBB- BBB 10.00 -0.2 0.0 0.3 0.5 0.8 1.0 1.3 1.8Africa Tunisia Ba3 NR BB- 6.00 -0.3 -0.3 -0.4 -0.4 -0.4 -0.5 -0.6 -0.7Africa Zimbabwe n/r n/r n/r n/r 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Middle East Bahrain Baa2 BBB BBB 10.00 -0.1 -0.2 -0.3 -0.4 -0.4 -0.6 -0.7 -0.9Middle East Iran n/r n/r n/r n/r 0.2 0.0 -0.2 -0.4 -0.5 -0.7 -0.9 -1.3Middle East Iraq n/r n/r n/r n/r -0.5 -0.7 -0.9 -1.1 -1.3 -1.5 -1.7 -2.1Middle East Israel A1 A+ A 13.67 0.0 0.2 0.3 0.4 0.5 0.6 0.8 1.0Middle East Jordan B1 BB- n/r 5.50 -0.2 -0.1 0.1 0.2 0.3 0.4 0.5 0.7Middle East Kuwait Aa2 AA AA 16.00 0.1 -0.4 -1.1 -1.3 -1.3 -2.2 -3.0 -3.7Middle East Lebanon B1 B- B 4.00 -0.3 -0.2 -0.1 0.0 0.1 0.2 0.3 0.5Middle East Libya n/r NR WD n/r 0.0 0.0 0.0 0.0 0.0 -0.1 -0.1 -0.1Middle East Oman A1 A n/r 13.50 -0.4 -0.8 -1.4 -1.7 -1.7 -2.5 -3.2 -3.8Middle East Qatar Aa2 AA n/r 16.00 0.2 0.0 -0.2 -0.3 -0.3 -0.5 -0.7 -0.9Middle East Saudi Arabia Aa3 AA- AA 15.33 0.3 -0.2 -0.7 -1.1 -1.2 -1.9 -2.5 -3.3Middle East Syria n/r n/r n/r n/r -0.1 0.1 0.3 0.5 0.7 0.9 1.1 1.5Middle East UAE Aa2 n/r n/r 16.00 0.0 -0.2 -0.4 -0.4 -0.5 -0.7 -0.9 -1.1Middle East Yemen n/r n/r n/r n/r -0.1 -0.2 -0.2 -0.3 -0.4 -0.5 -0.6 -0.7

Implied credit notch impact ("1" = one ratings notch)Current ratings

*Numeric ratings score based on 0 – 18 scale where 18 = “AAA”. For countries with no rating, BNP Paribas assessment used. Analysis of direct impact of a crude oil price shock on credit ratings scores. Analysis does not make adjustments for non-oil related drivers such as potential domestic fiscal or monetary policy response or changed political or other economic risks (such as sanctions).Source: BNP Paribas strategy research



22


Figure 39: Impact of USD 80/bbl oil price over three years on credit ratings (‘1’ = one ratings notch)

-5

-4

-3

-2

-1

0

1

2

3

An

gola

Gab

onA

lger

iaA

zerb

aija

nO

ma

nK

aza

khst

anIr

aqK

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ait

Sa

udi A

rabi

aV

ene

zuel

aE

cuad

orN

iger

iaR

ussi

aC

olom

bia

T&

TM

exi

coIr

anV

ietn

amU

AE

Tun

isia

Ye

men

Gha

naB

ahr

ain

Ivor

y C

oast

Qa

tar

Mal

ays

iaA

rgen

tina

Liby

aE

gyp

tU

zbek

ista

nZ

imba

bwe

Leba

non

Jord

anB

razi

lM

aced

onia

Bu

lga

riaIn

dia

Isra

elC

hina

Ke

nya

Se

rbia

Pa

kist

anS

ri La

nka

Po

lan

dH

unga

ryR

oma

nia

Cro

atia

Se

ych

elle

sM

old

ova

Pa

nam

aS

yria

Nic

ara

gua

So

uth

Afr

ica

Hon

dura

sC

osta

Ric

aG

uate

mal

aU

rug

uay

Tur

key

Mo

rocc

oE

l Sal

vado

rD

om R

ep

Be

laru

sP

eru

Lith

uani

aJa

mai

caC

uba

Hon

g K

ong

Ph

ilipp

ine

sIn

don

esia

Ch

ileC

ambo

dia

Latv

iaS

lova

kia

Est

onia

Mon

golia

Tai

wan

Bo

livia

Slo

veni

aT

hai

land

Sin

gapo

reC

zech

Rep

ublic

Ukr

aine

Bo

tsw

ana

Ko

rea

USD80/bbl USD70/bbl

Credit ratings imparement. Credit ratings improvements.


Have markets appropriately priced in the risks?

Markets are forward looking and the oil-shock may already be priced in. We examine market

activity since 30 June in the sovereigns listed in Figure 41, comparing their current levels with

appropriate various oil shocks scenarios. The results are summarised in Figure 40 and scaled in

order of ‘rich’ and ‘cheap’, at levels for ten-year bonds on 30 October.

It is noteworthy that although some sovereigns are flagged for upgrades in Figure 38, they

nevertheless appear ‘rich’. The Czech Republic is 28bp ‘rich’ even through our ratings model

indicates the country is in store for a 1.4 notch upgrade within three years, given an USD 80/bbl

oil price environment.

Some market moves appear justified, with selling in Gabon, Iraq, Angola and Azerbaijan moving

in the right direction, assuming oil is at USD 80/bbl. It is surprising that Ghana appears ‘fairly

valued’ as it is an energy producer which would see a 0.4-notch rating impairment. That said,

9bp for a ‘B-‘ credit is not even one standard deviation from the ratings trend. So, without IMF

funding, it could be argued that the sovereign is closer to ‘rich’.

Russia is one example where our oil-driven model does not fully account for other credit risks

that may come to bear on the country's rating and spreads. Were we to double the 0.6 notch

impairment the Federation ’23 would be 101bp ‘cheap’. The impact of reduced liquidity and

ongoing political risk would likely require further discounting.

Mexico is similar, flagged as 28bp ‘rich’ at the moment. However, this is based on the 0.5-notch

rating impairment from a USD 80/bbl oil price envioronment. Since the model does not account

for the improved political risks thanks to President Pina Nieto’s reform initiative, it is probable

that no downgrade will be in store for the country and spreads are currently ‘fairly’ valued,

possibly even still a bit ‘cheap’. But, if oil prices fell to USD60/bbl, Mexico’s risk premiums

should be 43bp wider than present.

Gabon, Iraq, Angola and Azerbaijan all appear ‘rich’

Although Mexico is ‘rich’, the impact of recent reforms are not reflected in the model and the sovereign is likely to be ‘fairly valued’

Although a country may be flagged for upgrade, it may still be trading ‘rich’, as with Czech Republic



23


Figure 40: ‘Rich’(+) and ‘cheap’(-) current market spreads (in bp) in USD 80/bbl oil price enviornmnet 13

990 83 82

66 56 48 40

31 29

28 28 27

27 18 16 10 9 9 9 8 7 6 4 4 1 0-1 -2 -2 -3 -3 -4

-10

-11

-12

-13

-16

-17

-17

-18

-19

-24

-27

-29

-31

-36

-45

-60

-69

-82

-83

-87

-10

1-1

05

-200

-150

-100

-50

0

50

100

150

200G

abon

Vie

tnam Iraq

Aze

rbai

jan

Se

rbia

An

gola

Leba

non

Ivor

y C

oast

T&

TE

cuad

orM

exic

oC

zech

Rep

ublic

Nig

eria

Jam

aica

Isra

el

Col

ombi

aLi

thua

nia

Ka

zakh

stan

Rom

ania

Gha

naK

ore

aP

ola

nd

Lat

via

Gua

tem

ala

Ph

ilipp

ines

Bo

livia

So

uth

Afr

ica

Hon

dura

sU

rugu

ayS

ri La

nka

Hun

gary

Dom

Re

pC

hile

Indo

nesi

aB

ulg

aria

Qat

arC

hina

Slo

vaki

aB

razi

lM

oroc

coP

aki

stan

Pe

ruP

ana

ma

Tur

key

Ke

nya

Ba

hrai

nC

roa

tiaB

ela

rus

Mac

edon

iaS

love

nia

Mon

golia

Cos

ta R

ica

El S

alva

dor

Rus

sia

Arg

entin

aU

krai

ne

Forward looking 'Rich' (+)/'Cheap'(-) Change since 30 Jun

'Rich' sovereign credits Secondary market spreads are 'Cheap' on a forward looking basis.

Some market moves appear justified, with selling in Gabon, Iraq, Angola and Mexico moving in the right direction, assuming a USD80/bbl oil environment.

Russia provides an example where our oil-driven model does not fully account for additional credit risks that may come to bear the country's ratings and spreads.

Assumes Argentina exits 'default' status. Fundamentals warrant a B+ rating today. Assumes no default for Venezuela. Source: EM Strategy desk estimates and forecasts



24


Figure 41: Implied ‘rich’/‘cheap’ analysis

Region CountryUSD100/

bblUSD95/

bblUSD90/

bblUSD85/

bblUSD80/

bblUSD75/

bblUSD70/

bblUSD60/

bbl 30-Jun 30-OctSpread change

Rich' (+)/'Cheap'(-) on current rating

Market move (for similar rated 10Y sov)

Implied ratings change

Implied 10Y

spread

Rich' (+)/'Chea

p'(-)USD100

/bblUSD90/

bblUSD70/

bblUSD60/

bblAsia -ex Japan Cambodia 2.4 27.7 7.4 -12.9 -30.4 -46.3 -64.7 -81.3 -- -- -- -- 48 1.2 351 -- -- -- -- --Asia -ex Japan China 1.6 10.8 8.1 5.4 3.0 0.7 -1.7 -4.0 77 76 -2 -6 -32 0.7 62 -13 -3 -8 -18 -22Asia -ex Japan Hong Kong 2.0 6.4 4.9 3.3 1.9 0.7 -0.8 -2.1 -- -- -- -- -47 1.0 37 -- -- -- -- --Asia -ex Japan India 1.5 39.3 31.8 23.7 17.7 12.6 4.6 -2.2 -- -- -- -- 12 0.5 169 -- -- -- -- --Asia -ex Japan Indonesia 2.2 29.6 20.6 11.3 3.9 -2.6 -11.2 -18.9 212 173 -40 22 12 1.0 163 -10 23 4 -26 -39Asia -ex Japan Korea 2.9 4.7 2.4 0.1 -2.0 -3.9 -6.0 -8.0 39 43 4 27 -32 1.9 51 8 17 12 4 0Asia -ex Japan Malaysia -0.2 22.4 22.9 23.6 23.9 24.0 24.9 25.6 -- -- -- -- -- -0.1 112 -- -- -- -- --Asia -ex Japan Mongolia 2.6 46.2 26.1 6.1 -10.9 -26.1 -44.0 -60.0 497 446 -51 10 48 1.3 364 -82 3 -44 -121 -154Asia -ex Japan Pakistan 1.4 111.2 90.1 69.1 50.1 32.5 13.0 -5.1 527 522 -5 35 56 0.6 504 -18 59 18 -55 -87Asia -ex Japan Philippines 2.0 30.9 24.4 17.9 12.1 6.9 0.8 -4.7 149 142 -7 31 12 1.0 146 4 28 15 -8 -18Asia -ex Japan Seychelles 1.4 34.5 23.0 11.5 1.1 -8.6 -19.5 -29.6 -- -- -- -- 41 0.7 325 -- -- -- -- --Asia -ex Japan Singapore 2.4 2.2 0.7 -0.8 -1.9 -2.8 -4.3 -5.6 -- -- -- -- -54 1.4 31 -- -- -- -- --Asia -ex Japan Sri Lanka 1.4 41.6 29.5 17.4 6.6 -3.4 -14.7 -25.2 321 304 -17 30 34 0.6 302 -2 42 19 -24 -42Asia -ex Japan Taiwan 2.4 8.4 5.5 2.5 0.1 -2.0 -4.8 -7.3 -- -- -- -- -32 1.3 56 -- -- -- -- --Asia -ex Japan Thailand 2.5 25.5 18.9 12.1 6.8 2.1 -4.1 -9.6 -- -- -- -- -3 1.2 106 -- -- -- -- --Asia -ex Japan Vietnam -0.8 59.5 63.5 69.6 71.6 71.5 79.9 86.3 225 205 -20 69 26 -0.4 295 90 80 89 103 108Latin America Argentina -0.1 13.5 14.9 17.0 17.7 17.7 20.6 22.7 623 503 -120 216 70 -0.1 398 -105 220 224 229 231Latin America Bolivia 2.6 21.6 8.2 -6.4 -16.7 -25.0 -39.1 -50.9 241 223 -18 59 26 1.3 224 1 48 20 -25 -42Latin America Brazil 0.2 14.7 15.3 16.3 16.6 16.6 17.9 18.8 146 172 26 -8 4 0.3 156 -17 -18 -17 -14 -13Latin America Chile 2.2 14.2 11.2 8.2 5.6 3.2 0.5 -2.0 68 62 -6 8 -32 1.1 58 -4 7 1 -10 -14Latin America Colombia -1.2 35.9 39.2 44.1 46.0 46.3 53.1 58.4 141 154 13 0 4 -0.6 170 16 6 14 28 34Latin America Costa Rica 1.8 52.0 42.0 32.0 23.3 15.4 6.2 -2.1 248 272 23 -56 19 0.8 188 -83 -49 -68 -100 -113Latin America Cuba 2.0 -76.2 -107.7 -138.7 -166.7 -192.7 -220.7 -246.7 -- -- -- -- 70 0.9 612 -- -- -- -- --Latin America Dom Rep 1.8 30.6 17.6 4.4 -7.1 -17.6 -29.9 -41.1 326 336 10 49 41 0.9 333 -3 50 21 -30 -52Latin America Ecuador -1.4 84.4 95.8 110.9 119.5 124.7 144.3 160.9 519 490 -29 -34 48 -0.8 519 29 -11 15 64 86Latin America El Salvador 1.8 61.4 49.1 36.7 26.0 16.3 4.7 -5.9 361 352 -9 -45 34 0.9 265 -87 -42 -67 -109 -127Latin America Guatemala 1.7 37.8 28.8 19.9 11.7 4.0 -4.1 -11.8 250 209 -41 35 26 0.8 213 4 38 20 -12 -25Latin America Honduras 1.7 83.7 64.8 46.0 29.3 13.8 -3.5 -19.4 446 411 -35 59 48 0.8 410 -1 68 31 -33 -61Latin America Jamaica 1.9 108.1 83.4 58.2 37.2 18.5 -5.1 -26.3 483 464 -20 109 63 0.9 491 27 114 66 -17 -52Latin America Mexico -1.2 28.5 31.2 35.5 36.8 36.5 42.7 47.4 88 107 20 16 -3 -0.5 135 28 20 27 39 43Latin America Nicaragua 1.6 132.4 112.2 92.0 74.1 57.5 38.9 21.6 -- -- -- -- 56 0.7 453 -- -- -- -- --Latin America Panama 1.6 41.5 35.7 29.9 24.7 20.0 14.6 9.6 157 161 3 -6 4 0.7 137 -24 -2 -14 -34 -43Latin America Peru 1.8 26.1 21.3 16.6 12.4 8.5 4.2 0.2 121 126 5 -2 -3 0.9 107 -19 -1 -11 -28 -35Latin America T&T -1.7 31.0 35.2 41.4 43.9 44.5 53.5 60.8 79 89 11 21 -10 -0.5 121 31 18 28 48 56Latin America Uruguay 1.8 44.7 37.9 31.0 25.1 19.7 13.3 7.4 151 153 2 21 12 0.8 151 -2 23 10 -14 -25Latin America Venezuela -2.5 76.2 103.4 146.6 202.1 485.4 902.7 1388.1 858 1288 430 -730 63 -1.1 848 -440 -695 -625 1888 2958Emerging Europe Bulgaria -0.3 41.4 41.5 40.8 41.6 43.2 41.7 41.0 175 193 18 -20 12 -0.3 183 -11 -13 -13 -13 -12Emerging Europe Croatia 1.3 56.8 50.2 43.2 37.4 32.2 25.4 19.2 258 254 -4 -10 26 0.7 218 -36 -12 -25 -49 -60Emerging Europe Czech Republic 2.8 17.5 13.5 9.5 6.2 3.2 -0.3 -3.5 43 30 -13 44 -25 1.4 58 28 42 34 21 15Emerging Europe Estonia 2.6 14.3 10.7 7.1 4.0 1.3 -1.9 -4.8 -- -- -- -- -25 1.3 59 -- -- -- -- --Emerging Europe Hungary 1.3 64.6 58.5 52.1 46.7 42.0 35.6 29.9 196 211 15 20 19 0.6 208 -3 20 7 -15 -25Emerging Europe Latvia 2.5 26.9 21.4 15.9 11.1 6.9 1.9 -2.6 112 88 -24 29 -10 1.2 94 6 27 16 -3 -11Emerging Europe Lithuania 1.9 22.9 18.5 13.7 10.2 7.4 2.6 -1.5 101 89 -12 27 -10 0.9 100 10 26 17 1 -5Emerging Europe Macedonia 1.0 27.1 21.1 15.0 9.6 4.5 -1.4 -7.0 327 300 -27 -41 26 0.5 239 -60 -38 -50 -72 -82Emerging Europe Moldova 1.6 132.8 113.0 93.3 75.6 59.1 40.9 24.0 -- -- -- -- 56 0.7 455 -- -- -- -- --Emerging Europe Poland 1.2 30.2 27.5 24.7 22.4 20.4 17.6 15.1 94 87 -7 17 -10 0.6 94 7 17 12 2 -3Emerging Europe Romania 1.5 59.6 54.0 48.4 43.3 38.6 33.3 28.3 156 154 -2 30 12 0.7 163 9 30 18 -2 -11Emerging Europe Serbia 1.3 93.6 82.0 70.2 59.9 50.5 39.3 28.9 276 264 -13 100 41 0.6 330 66 108 85 45 26Emerging Europe Slovakia 2.5 20.5 16.3 12.2 8.6 5.4 1.7 -1.7 103 87 -17 1 -18 1.3 71 -16 0 -9 -23 -29Emerging Europe Slovenia 2.7 33.5 25.9 18.3 11.9 6.2 -0.6 -6.6 172 185 13 -39 4 1.3 116 -69 -41 -56 -82 -92Emerging Europe Turkey 1.9 42.8 34.5 26.1 18.9 12.3 4.6 -2.4 222 214 -8 2 19 0.8 188 -27 -22 -38 -66 -78CIS Azerbaijan -5.0 26.1 46.7 79.3 94.9 100.5 154.4 203.9 182 184 2 0 12 -2.2 266 82 8 61 184 250CIS Belarus 1.8 46.2 25.9 4.1 -12.3 -25.9 -47.6 -66.2 526 492 -35 20 56 0.8 447 -45 26 -15 -84 -113CIS Kazakhstan -2.8 30.8 38.6 49.8 55.6 58.5 74.5 88.4 -- 167 -- -29 -- -1.4 176 9 -19 0 39 57CIS Russia -1.3 35.4 39.6 45.8 48.4 49.1 57.6 64.4 199 274 75 -117 4 -0.6 173 -101 -114 -104 -86 -78CIS Ukraine 3.0 30.8 -11.6 -57.5 -88.8 -112.9 -157.0 -192.9 652 840 188 -121 70 1.5 561 -279 -140 -226 -357 -408CIS Uzbekistan 0.0 29.1 29.1 29.1 29.1 29.1 29.1 29.1 -- -- -- -- 41 0.0 336 -- -- -- -- --Africa Algeria -4.0 -3.5 2.1 8.3 14.9 22.0 29.7 38.0 -- -- -- -- -32 -2.3 103 -- -- -- -- --Africa Angola -4.1 68.3 94.0 122.0 151.8 183.7 219.5 258.0 329 374 45 -85 34 -2.3 430 56 -58 -5 128 212Africa Botswana 2.8 2.6 -0.4 -3.4 -6.1 -8.6 -11.4 -14.0 -- -- -- -- -18 1.9 73 -- -- -- -- --Africa Egypt 0.4 91.3 84.0 71.5 69.7 72.9 55.7 43.9 -- -- -- -- -- 0.0 544 -- -- -- -- --Africa Gabon -4.9 60.5 93.4 145.5 169.3 176.6 260.8 336.7 257 314 58 -8 34 -2.3 453 139 25 109 295 390Africa Ghana -0.4 115.1 114.9 113.6 114.4 116.3 113.9 112.6 611 570 -41 -29 56 -0.4 579 9 7 5 4 5Africa Ivory Coast -0.5 154.9 157.9 162.2 164.0 164.4 170.1 174.5 365 379 14 17 41 -0.3 418 40 30 37 50 54Africa Kenya 1.4 84.1 70.5 56.9 44.6 33.2 20.6 8.9 384 358 -26 5 41 0.6 329 -29 21 -6 -53 -74Africa Morocco 1.8 28.0 21.2 14.2 8.3 3.1 -3.6 -9.6 184 176 -8 8 12 0.8 159 -17 8 -6 -30 -40Africa Nigeria -1.3 65.8 73.7 84.2 90.3 94.1 107.7 119.3 285 315 30 -8 34 -0.6 342 27 -1 17 52 68Africa South Africa 1.8 36.6 29.9 23.1 17.4 12.2 5.9 0.2 195 182 -14 25 19 0.8 182 0 33 15 -16 -29Africa Tunisia -0.7 87.2 90.1 94.2 96.0 96.5 101.9 106.1 -- -- -- -- 34 -0.4 331 -- -- -- -- --Africa Zimbabwe 0.0 118.9 118.9 118.9 118.9 118.9 118.9 118.9 -- -- -- -- 26 0.0 272 -- -- -- -- --Middle East Bahrain -0.9 32.9 35.5 39.9 41.0 40.4 46.6 51.3 208 196 -12 -41 4 -0.4 164 -31 -39 -32 -20 -16Middle East Iran -1.3 13.2 19.8 27.3 33.6 39.5 48.4 56.9 -- -- -- -- 19 -0.5 229 -- -- -- -- --Middle East Iraq -2.1 398.4 415.6 433.7 451.9 470.3 490.9 512.0 422 453 31 -22 48 -1.3 536 83 13 48 124 166Middle East Israel 1.0 13.0 11.3 9.6 8.2 6.9 5.2 3.6 77 59 -18 24 -25 0.5 76 18 24 20 14 11Middle East Jordan 0.7 110.4 103.6 96.5 90.6 85.3 78.0 71.4 -- -- -- -- 34 0.3 319 -- -- -- -- --Middle East Kuwait -3.7 5.9 10.3 17.8 20.2 19.7 31.9 42.3 -- -- -- -- -40 -1.3 69 -- -- -- -- --Middle East Lebanon 0.5 79.9 72.1 64.0 56.7 49.9 42.0 34.5 370 375 5 56 48 0.1 423 48 78 62 33 20Middle East Libya -0.1 58.5 59.7 60.9 62.1 63.3 64.6 65.8 -- -- -- -- 78 0.0 -- -- -- -- --Middle East Oman -3.8 21.4 28.2 38.9 43.4 44.4 61.0 75.5 -- -- -- -- -25 -1.7 115 -- -- -- -- --Middle East Qatar -0.9 5.3 6.6 8.4 9.1 9.1 11.7 13.8 60 70 11 -15 -40 -0.3 58 -12 -16 -13 -7 -5Middle East Saudi Arabia -3.3 4.5 9.0 15.4 19.2 21.6 31.2 39.9 -- -- -- -- -32 -1.2 77 -- -- -- -- --Middle East Syria 1.5 8.7 2.3 -3.7 -9.7 -15.7 -21.0 -26.2 -- -- -- -- 12 0.7 171 -- -- -- -- --Middle East UAE -1.1 -25.6 -24.3 -22.3 -21.5 -21.4 -18.7 -16.5 -- -- -- -- -- -0.5 60 -- -- -- -- --Middle East Yemen -0.7 45.7 52.9 60.3 67.8 75.3 83.0 90.8 -- -- -- -- 56 -0.4 530 -- -- -- -- --

Theoretical 10Y bond spread impact of ratings changeActual market move for bond spreads

(10Y where available*)

After ratings and market adjustment

for USD80/bbl oil Other 'Rich' (+)/'Cheap'(-) scenarios

Closest available 10Y bond used. Otherwise: Argentina Par, Belarus ’18, Czech ’22, Angola ’19, Macedonia ’24, China ’27, UAE ’19, Bahrain ’22, Bolivia ’22, Congo ’29, Chile ’22, DR ’27, Ivory Coast ’28, Morocco ’22, Serbia ’21, Zambia ’22.

Numeric ratings score based on 0 – 18 scale where 18 = “AAA”. For countries with no rating, BNP Paribas assessment used. Analysis of direct impact of a crude oil price shock on credit ratings scores. Source: BNP Paribas strategy research



25


Emerging Markets Strategy Contacts Piotr Chwiejczak FX & IR CEEMEA Strategist London 44 20 7595 8715 [email protected]

David Spegel Global Head of Sovereign and Credit Strategy

London 44 20 7595 8195 [email protected]

Erkin Isik FX & IR CEEMEA Strategist Istanbul 90 (216) 635 2987 [email protected]

Mirza Baig Head of FX & IR Asia Strategy Singapore 65 6210 3262 [email protected]

Jasmine Poh FX & IR Asia Strategy Singapore 65 6210 3418 [email protected]

Yii Hui Wong FX & IR Asia Strategy Singapore 65 6210 3314 [email protected]

Jennifer Kusuma FX & IR Asia Strategy Singapore 65 6210 3263 [email protected]

Gabriel Gersztein Head FX & IR Latam Strategy Sao Paulo 55 11 3841 3421 [email protected]

Thiago Alday FX & IR Latam Strategist Sao Paulo 55 11 3841 3445 [email protected]

James Z Hao FX & IR Latam Strategist New York 1 917 472 4333 [email protected]

Damien Botton LATAM Credit Strategy Sao Paulo 55 11 3841 3251 [email protected]

Emerging Markets Sector Specialists Contacts Tatiana Tchembarova Sector Specialist London 44 20 7595 1251 [email protected]

Ray Heung Head Asia Credit Strategy Hong Kong 852 2108 5283 [email protected]

Susan Chie Asia Credit Strategy Hong Kong 852 2108 5290 [email protected]

Rahul Gupta Asia Credit Strategy Hong Kong 852 2108 5257 [email protected]

Tony H Chen Asia Credit Strategy Hong Kong 852 2108 5284 [email protected]

Production and DistributionBarbara Consuelo, London. Tel: 44 20 7595 8486, Email: [email protected]

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bnp - energy price shock scenarios 31oct2014

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