The traditional signs of a falling currency debt crisis, 1,000 basis point bond spreads and burned foreign exchange reserves point to a record number of developing nations now in trouble.
Lebanon, Sri Lanka, Russia, Suriname and Zambia are already in arrears, Belarus is on the brink and at least a dozen more are in the danger zone as rising borrowing costs, inflation and debt intensify. fears of an economic collapse.
Adding the cost is water the view. Using 1,000-point bond spreads as a pain threshold, analysts estimate there is $ 400 billion in debt. Argentina has, by far, the majority with more than $ 150 billion, while the next in line are Ecuador and Egypt with $ 40 billion-$ 45 billion.
Veterans of the crisis hope many will still be able to dodge defaults, especially if global markets calm down and the IMF reacts with support, but these are the countries at risk.
Argentina
It seems likely that the defaulting world record holder will increase his count. The peso is now trading at a close to 50% discount on the black market, reserves are very low and bonds are trading at just 20 cents on the dollar, less than half of what they were after the country’s debt restructuring in 2020.
The government has no substantial debt to pay until 2024, but it is intensifying after that and concerns have risen for powerful Vice President Cristina Fernandez de Kirchner to press for renunciation of the International Monetary Fund.
Ukraine
Russia’s invasion means Ukraine will almost certainly have to restructure its more than $ 20 billion debt, warn heavy investors like Morgan Stanley and Amundi.
The crisis comes in September, when $ 1.2 billion in bonds have to be paid. The money and aid reserves mean that Kyiv could pay. But with state-owned Naftogaz calling for a two-year debt freeze this week, investors suspect the government will stay the same.
Tunisia
Africa has a group of countries that go to the IMF, but Tunisia seems to be one of the most at risk.
A budget deficit close to 10 percent, one of the highest public sector payrolls in the world, and there are concerns that securing, or at least respecting, an IMF program can be difficult due to the push of the IMF program. President Kais Saied to strengthen power. and the powerful and incalcitrant labor union of the country.
Tunisian bond spreads (the premium that investors demand to buy debt instead of US bonds) have risen to 2,800 basis points and along with Ukraine and El Salvador, Tunisia is on Morgan’s top three delinquent list. Stanley. “An agreement with the International Monetary Fund is essential,” said Tunisian central bank chief Marouan Abassi.
Ghana
Furious indebtedness has caused Ghana’s debt-to-GDP ratio to soar to almost 85%. Its currency, the cedi, has lost almost a quarter of its value this year and was already spending more than half of its tax revenue on interest payments on debt. Inflation is also approaching 30%.
Egypt
Egypt has a debt-to-GDP ratio close to 95% and has seen one of the largest international cash exoduses this year: about $ 11 billion according to JPMorgan.
Fund firm FIM Partners estimates that Egypt has a strong currency debt of $ 100 billion to pay over the next five years, including a $ 3.3 billion bond in 2024.
Cairo devalued the pound by 15 per cent and sought help from the IMF in March, but bond spreads now exceed 1,200 basis points and credit default swaps (CDS), an investor tool to hedge the risk, the price with a 55 percent chance of failing a payment.
Francesc Balcells, CIO of FIM Partners ’EM debt, estimates that about half of the $ 100 billion Egypt has to pay in 2027 is to the IMF or bilaterally, mostly in the Gulf. “Under normal conditions, Egypt should be able to pay,” Balcells said.
Kenya
Kenya spends about 30% of its income on interest payments. Its bonds have lost almost half of their value and it currently has no access to capital markets, a problem with a $ 2 billion bond that will expire in 2024.
On Kenya, Egypt, Tunisia and Ghana, Moody’s David Rogovic said: “These countries are the most vulnerable only because of the amount of debt that is due in relation to reserves and fiscal challenges in terms of stabilizing the debt burden. “.
Ethiopia
Addis Ababa plans to be one of the first countries to achieve debt relief under the G20 common framework program. Progress has been hampered by the country’s ongoing civil war, although in the meantime it continues to serve its only $ 1 billion international bond.
El Salvador
Making bitcoin legal tender closed the door to IMF hopes. Confidence has fallen to the point that a $ 800 million bond maturing in six months is trading at a 30% discount and the long-term bond at a 70% discount.
Pakistan
Pakistan reached a crucial agreement with the IMF this week. The breakthrough could not be more timely, with high energy import prices pushing the country on the brink of a balance of payments crisis.
Foreign exchange reserves have shrunk to $ 9.8 billion, nearly enough for five weeks of imports. The Pakistani rupee has weakened to historic lows. The new government needs to cut spending quickly, as it spends 40 percent of its revenue on interest payments.
Belarus
Western sanctions fought Russia in breach last month and Belarus now faces the same harsh deal it has been with Moscow in the Ukraine campaign.
Ecuador
The Latin American country was only in default two years ago, but has returned to crisis due to violent protests and an attempt to oust President Guillermo Lasso.
It has a lot of debt and, with the government subsidizing fuel and food, JPMorgan has increased its public sector fiscal deficit forecast to 2.4% of GDP this year and 2.1% next year. Bond spreads have exceeded 1,500 bp.
Nigeria
Bond spreads are just over 1,000 bp, but Nigeria’s next $ 500 million bond payment within a year should be easily covered with reserves that have been steadily improving since June. However, it spends nearly 30 percent of government revenue paying interest on its debt.
“I think the market is overestimating many of these risks,” said Brett Diment, head of emerging market debt at investment firm Abrdn.
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