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Lebanon, Sri Lanka, Russia, Suriname and Zambia are already in default, Belarus is on the brink and at least a dozen more are in danger as rising borrowing costs, inflation and debt stoke fears of economic collapse.
Adding up the costs is a feast for the eyes. Using bond spreads of 1,000 basis points as a pain threshold, analysts calculate that there is $400 billion in debt at play. Argentina has by far the most money at over $150 billion, followed by Ecuador and Egypt at $40-45 billion.
Crisis veterans are hoping many can still avoid a default, especially when global markets calm down and the IMF steps in with support, but these are the vulnerable countries.
ARGENTINA
The world record holder of government bond defaults is likely to add to its balance sheet. The peso is now trading at a discount of almost 50% on the black market, reserves are critically low and bonds are trading at just 20 cents on the dollar – less than half what they were after the country’s debt restructuring in 2020.
The government has no significant debt to service until 2024, but after that it will ramp up, and concerns have crept in that powerful Vice President Cristina Fernandez de Kirchner could be pushing to break away from the International Monetary Fund.
UKRAINE
Russia’s invasion means Ukraine will almost certainly have to restructure its more than $20 billion in debt, heavyweight investors like Morgan Stanley and Amundi warn.
The crisis comes in September when bond payments of $1.2 billion are due. Aid and reserves mean Kyiv could potentially pay. But with state-owned Naftogaz calling for a two-year debt freeze this week, investors suspect the government will follow suit.
TUNISIA
Africa has a group of countries turning to the IMF, but Tunisia appears to be one of the most vulnerable.
A budget deficit of nearly 10%, one of the highest public sector wage bills in the world and there are concerns that securing, or at least complying with, an IMF program could be difficult due to President Kais Saied’s drive to bolster his power in the powerful , unpredictable union of the country.
Tunisian bond spreads — the premium investors charge to buy the debt rather than US bonds — have risen to over 2,800 basis points and, along with Ukraine and El Salvador, Tunisia joins Morgan Stanley’s top 3 list of likely ones payment defaults. “A deal with the International Monetary Fund is imperative,” said Tunisia’s central bank governor Marouan Abassi.
GHANA
Furious borrowing has pushed Ghana’s debt ratio to almost 85% of GDP. Its currency, the cedi, has lost almost a quarter of its value this year and it has already spent more than half its tax revenue on debt interest payments. Inflation is also approaching 30%.
EGYPT
Egypt has a debt-to-GDP ratio of nearly 95% and has seen one of the largest exodus of international cash this year — about $11 billion, according to JPMorgan.
Fund manager FIM Partners estimates that Egypt will have to pay off $100 billion in hard currency debt over the next five years, including a substantial $3.3 billion bond issue in 2024.
Cairo devalued sterling by 15% and asked the IMF for help in March, but bond spreads are now over 1,200 basis points and credit default swaps (CDS) – a tool for investors to hedge risk – are pricing a 55% probability indicates that a payment fails.
But Francesc Balcells, CIO of emerging market debt at FIM Partners, estimates that about half of the $100 billion Egypt will have to pay by 2027 will have to be paid to the IMF or bilaterally, mostly in the Gulf. “Under normal circumstances, Egypt should be able to pay,” Balcells said.
Kenya spends about 30% of its income on interest payments. Its bonds have lost nearly half their value and it currently has no access to capital markets — a problem with a $2 billion bond issue that matures in 2024.
On Kenya, Egypt, Tunisia and Ghana, Moody’s David Rogovic said, “These countries are the most vulnerable simply because of the size of debt due relative to reserves and the fiscal challenges of stabilizing debt burdens.”
ETHIOPIA
Addis Ababa wants to be one of the first countries to receive debt relief under the G20 Joint Framework Programme. Progress has been held up by the country’s ongoing civil war, though in the meantime it continues to service its only $1 billion international bond issue.
EL SALVADOR
The introduction of Bitcoin as legal tender has all but closed the door on IMF hopes. Confidence has dropped to the point where an $800 million, six-month bond is trading at a 30% discount and longer-dated bonds are trading at a 70% discount.
PAKISTAN
Pakistan reached an important deal with the IMF this week. The breakthrough couldn’t come any sooner as high energy import prices push the country to the brink of a balance of payments crisis.
Foreign exchange reserves have fallen to as low as $9.8 billion, barely enough for five weeks of imports. The Pakistani rupee has weakened to a record low. The new government must now cut spending quickly as it spends 40% of its income on interest payments.
BELARUS
Western sanctions forced Russia into default last month, and Belarus is now facing the same harsh treatment that helped Moscow campaign in Ukraine.
ECUADOR
The Latin American country defaulted just two years ago but was plunged back into crisis by violent protests and an attempt to overthrow President Guillermo Lasso.
It has a lot of debt and with the government subsidizing fuel and food, JPMorgan has raised its forecast for the public sector budget deficit to 2.4% of GDP this year and 2.1% next year. Bond spreads have exceeded 1,500 basis points.
NIGERIA
Bond spreads are just above 1,000 basis points, but Nigeria’s next $500 million bond payment in a year should be easily met by reserves, which have been steadily improving since June. However, it spends nearly 30% of government revenue to pay interest on its debt.
“I think the market is overstating a lot of these risks,” said Brett Diment, head of emerging market debt at investment firm ardn.
