Signs of a traditional debt crisis of crashing currencies, 1,000 basis point bond spreads and burnt FX reserves point to a record number of developing countries now in crisis.
Lebanon, Sri Lanka, Russia, Suriname and Zambia are already in default, Belarus is on the verge and at least a dozen are in the danger zone as rising borrowing costs, inflation and debt all fuel fears of an economic collapse.
Raising the cost is eye-watering. Using a 1,000 basis point bond spread as a pain threshold, analysts calculated that $400 billion of debt is running out. Argentina has by far the most, with more than $150 billion, while Ecuador and Egypt are next in line with $40 billion to $45 billion.
Crisis veterans hope many can still dodge default, especially if global markets are calm and lined up with IMF support, but these are countries at risk.
Argentina
The sovereign default world record holder is likely to add to his tally. The peso now trades at a discount of about 50 percent on the black market, reserves are severely low and the bond trades at just 20 cents in the dollar – less than half of what the country’s 2020 debt restructuring led to.
The government doesn’t have enough debt to serve until 2024, but that has since escalated and raised concerns that powerful vice president Cristina Fernández de Kirchner could pressure her to rejoin the International Monetary Fund. Huh.
Ukraine
Russia’s invasion means Ukraine Heavyweight investors like Morgan Stanley and Amundi will almost certainly have to restructure their more than $20 billion of debt, warns.
The crisis comes in September when a $1.2 billion bond payment is due. Aid funds and reserves mean Kyiv can potentially pay off. But with state-run Naftogaz seeking a two-year loan freeze this week, investors are skeptical the government will follow suit.
Tunisia
Africa has a group of countries going to the IMF but Tunisia is most at risk. The budget deficit, of around 10 percent, is one of the highest public sector wage bills in the world, and there are concerns that pressure from President Kais Syed to tighten his grip on the IMF program will lead to, or at least stick to, the IMF program. can be difficult. And the country’s powerful, stubborn labor union.
Tunisian bond spreads – premium investors seeking to buy debt instead of US bonds – have risen by more than 2,800 basis points and, along with Ukraine and El Salvador, Tunisia is on Morgan Stanley’s top three list of potential defaulters. “An agreement with the International Monetary Fund has become imperative,” said Maruan Abassi, head of Tunisia’s central bank.
Ghana
Fierce lending has raised Ghana’s debt-to-GDP ratio to nearly 85 percent. Its currency, the cedi, has lost about a quarter of its value this year and was already spending more than half of its tax revenue on debt interest payments. Inflation is also approaching 30 percent.
Egypt
Egypt’s debt-to-gross domestic product ratio is about 95 percent and has seen one of the biggest exodus of international cash this year – about $11 billion according to JPMorgan. Fund firm FIM Partners estimates that Egypt has $100 billion in hard currency debt to be paid off over the next five years, including a $3.3 billion sentiment bond in 2024.
Cairo devalued the pound 15 percent and sought help from the IMF in March, but bond spreads are now over 1,200 basis points and credit default swaps (CDS) — an investor tool to hedge risk — are valued in a 55 percent probability. But fails. payment.
Francesc Balcells, CIO of EM Loans at FIM Partners, estimates that Egypt needs to pay around $100 billion by 2027 to the IMF or bilateral, mainly in the Gulf. “Under normal circumstances, Egypt should be able to pay,” Balsals said.
Kenya
Kenya spends about 30% of its revenue on interest payments. Its bonds have lost nearly half their value and currently do not have access to the capital markets – a problem with $2 billion worth of bonds coming out in 2024.
Moody’s David Rogovich on Kenya, Egypt, Tunisia and Ghana said: “These countries are the most vulnerable because of the amount of debt coming in relative to reserves, and there are fiscal challenges in terms of stabilizing the debt burden.”
Ethiopia
Addis Ababa is planning to become one of the first countries to get debt relief under the G20 Common Framework Programme. Progress has been halted by the country’s ongoing civil war, although in the meantime it continues to service its only $1 billion international bond.
Protector
Making bitcoin legal tender but closed the doors to the IMF’s hopes. The trust has eroded to the point where an $800 million bond maturing in six months trades at a 30% discount and the longer term at a 70% discount.
Pakistan
Pakistan struck a crucial IMF deal this week. Success could not be more timely, with high energy import prices pushing the country to the brink of a balance of payments crisis.
Foreign exchange reserves have fallen to $9.8 billion, which is barely enough for five weeks of imports. The Pakistani rupee has weakened to a record low. The new government now needs to cut spending sharply as it spends 40% of its revenue on interest payments.
Belarus
Western sanctions wrestled Russia into default last month and Belarus now faces the same tough treatment it stood with Moscow in the Ukraine campaign.
Ecuador
The Latin American country defaulted only two years ago but has been thrown into crisis by violent protests and an attempt to oust President Guillermo Lasso.
It is heavily indebted and with the government providing fuel and food subsidies, JP Morgan has raised its public sector fiscal deficit forecast to 2.4% of GDP this year and 2.1% next year. The bond spread is above 1,500 bps.
Nigeria
Bond spreads are just over 1,000 bps, but Nigeria’s next $500 million bond payment should be easily covered in a year’s time by reserves that have been improving steadily since June. Although it pays interest on its debt to about 30% of government revenue.
“I think the market is pricing in too much of these risks,” said Brett Dement, head of emerging market lending at investment firm Aberdon.
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