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Is it time for “the big flaw”? A dozen countries are heading for economic collapse

A record number of developing countries are now struggling, according to traditional indicators of the debt crisis such as collapsing currencies, 1,000 basis point spreads and depleted foreign exchange reserves. Rising bond prices, inflation and debt are all fueling fears of economic collapse, with the result that Lebanon, Sri Lanka, Russia, Suriname and Zambia are already in default, Belarus is about to default and at least another dozen countries are in danger of default.

The total price is staggering. Analysts estimate that $400 billion of debt is at risk using bond spreads of 1,000 basis points as the pain threshold. Argentina has by far the biggest, with more than $150 billion, followed by Ecuador and Egypt, each with between $40 and $45 billion. Crisis veterans believe many can still avoid default, particularly if global markets stabilize and the IMF steps in to offer aid, but it is the countries that remain vulnerable.

Argentina’s government won’t have to pay off any major debt until 2024, but after that the burden will increase and concerns have started to grow that strong Vice President Cristina Fernandez de Kirchner could try to force Argentina to break her pledge. to the International Monetary Fund. The deadline for Ukraine’s $1.2 billion bond payments is in September. Kyiv may be able to make payments from reserves and aid money. However, investors believe the government will follow suit following state-owned Naftogaz’s request for a two-year debt freeze this week.

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Due to President Kais Saied’s efforts to consolidate his grip on power and the country’s strong and stubborn trade union, there are fears that obtaining, or at least joining, an IMF program will be difficult in Tunisia. It has a budget deficit of almost 10% and one of the highest public sector wage bills in the world. Furious borrowing has led to an increase in Ghana’s debt-to-GDP ratio to almost 85%. It has already spent more than half of tax revenue on debt interest payments, and its currency, the cedi, has lost about a quarter of its value this year. In addition, inflation is close to 30%.

With a debt-to-GDP ratio of around 95%, Egypt has seen one of the largest outflows of foreign funds this year, JPMorgan estimates, totaling $11 billion. Kenya pays interest on just over 30% of its income. Given that it no longer has access to funding markets and has bonds worth over half a billion dollars maturing in 2024, this is problematic. Ethiopia will be one of the first nations to receive debt relief under the G20 Common Framework initiative. Although the country’s protracted civil war has slowed progress, it is still paying interest on its only $1 billion international bond.

(with agency contributions)

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Post expires at 5:41am on Thursday July 21st, 2022