Narasi.net — A number of developing countries are facing serious debt crises. This is due to the fall in currency exchange rates, high bond levels, and depleting foreign exchange reserves.
Lebanon, Sri Lanka, Russia, Suriname and Zambia are already in default. Belarus is on the threshold, and dozens of other countries are in the danger zone. Rising borrowing costs, inflation, and debt affect these conditions, and trigger fears of a global economic collapse.
According to analysts, there is US$ 400 billion in debt due to high bond rates, reaching 1,000 bps. In this case, Argentina is the country with the largest debt, reaching US$ 150 billion. Ecuador and Egypt followed in the next position with an average debt of US$ 40-45 billion.
Crisis veterans hope to avoid defaulting on debt, especially if global markets calm and the IMF is supportive. Quoted from Reuters, Saturday (16/7/2022), the following is a list of countries at risk and in the danger zone.
List of Debt Crisis Countries:
Argentina’s predicate as the country with the highest debt default seems to be increasing. On the black market, the Peso is traded at a discount of almost 50%.
Foreign reserves are already very low, and bonds are trading at just 20 cents, less than half of what Argentina did after the 2020 sovereign debt restructuring.
The Argentine government does not have large debts until 2024. However, Argentina’s debt has the potential to increase if it fails to pay the International Monetary Fund (IMF).
As a result of the Russian invasion, Ukraine had to restructure its debt worth US$ 20 billion. The crisis began in September, when bond payments worth US$ 1.2 billion were due.
Several countries in Africa have asked the IMF for help. However, Tunisia appears to be one of the most at-risk countries.
Tunisia has a budget deficit of nearly 10%, and has the highest public sector wages in the world. The Tunisian bond rate increased to more than 2,800 bps.
Along with Ukraine and El Salvador, Tunisia is on Morgan Stanley’s top three list of possible debt defaults.
Massive borrowing made Ghana’s debt-to-GDP ratio soar to nearly 85%. The currency, the cedi, has lost nearly a quarter of its value this year
Ghana already spends more than half of its tax revenue on debt interest. Inflation in the country is approaching 30%.
Egypt has a debt-to-GDP ratio of almost 95%. Fund firm FIM Partners estimates Egypt has $100 billion in debt to pay over the next five years, including $3.3 billion in bonds by 2024. Cairo devalued the pound by 15% and asked the IMF for help last March. But the bond spread is now over 1,200 bps.
Francesc Balcells, CIO debt EM at FIM Partners, estimates that about half of the $100 billion that Egypt will have to pay by 2027 will be for the IMF or bilateral needs in the Gulf region. “Under normal conditions, Egypt should be able to pay,” Balcells said.
Kenya spends about 30% of its state income on interest payments. Kenyan bonds have lost nearly half of their value, and currently have no access to related capital markets the problem with the $2 billion dollar bond that will mature
Regarding Kenya, Egypt, Tunisia and Ghana, Moody’s David Rogovic said these countries are the most vulnerable
and face fiscal challenges in terms of stabilizing the debt burden.
Ethiopia plans to be the first country to get debt relief under the G20 Common Framework programme. The civil war that took place in Ethiopia hindered the country’s progress. As of now, Ethiopia still has to manage its only US$1 billion international bond.
8. El Salvador
Making bitcoin legal tender closes the door on the IMF’s hopes. Trust has fallen to the point where $800 million bonds maturing in six months are trading at a 30% discount, and long-term bonds at a 70% discount.
Pakistan reached a landmark deal with the IMF this week. High energy commodity import prices pushed the country to the brink of a balance of payments crisis.
Foreign currency reserves thinned to as low as US$ 9.8 billion, not expected to be enough for imports for five weeks. The Pakistani rupee weakened to a record low.
Western-imposed sanctions saw Russia default last month. Now, Belarus is getting the same treatment for supporting Moscow’s position in the conflict in Ukraine.
The Latin American country actually only defaulted two years ago. However, Ecuador was again rocked into crisis by violent protests and attempts to overthrow President Guillermo Lasso.
Ecuador is in debt because the government provides many subsidies, including fuel and food. JPMorgan has raised its public sector fiscal deficit forecast to 2.4% of GDP this year and 2.1% next year. Meanwhile bond spread has reached 1,500 bps.
The Nigerian bond spread is actually only around 1,000 bps. Nigeria also has a burden of US$ 500 million in bonds maturing within a year, which should be covered by its rising foreign exchange reserves since June.
Despite this, Nigeria spends nearly 30% of government revenue paying interest on its foreign debt.