The traditional debt crisis signs of collapsing currencies, 1,000 basis point bond spreads and burned foreign reserves point to a record number of developing nations now in trouble.
Lebanon, Sri Lanka, Russia, Suriname and Zambia are already in default, Belarus is on the brink and at least a dozen more are in the danger zone as rising borrowing costs, inflation and debt fuel fears of economic collapse.
The price increase is an eyesore. Using bond spreads of 1,000 basis points as a pain threshold, analysts estimate there is $400 billion in debt. Argentina has by far the most with over $150 billion, while Ecuador and Egypt are next in line with $40-45 billion.
Veterans of the crisis hope that many can still avoid bankruptcy, especially if global markets calm down and the IMF steps in with support, but these are the countries at risk.
Argentina
The reigning world record holder by default looks likely to add to his tally. The peso now trades at a nearly 50 percent discount on the black market, reserves are critically low and bonds trade at just 20 cents on the dollar — less than half of what they were after the country’s 2020 debt restructuring.
The government has no significant debt to service until 2024, but it is rising after that and fears are creeping in that powerful Vice President Cristina Fernandez de Kirchner may push to ditch the International Monetary Fund.
Ukraine
Russia’s invasion means Ukraine will almost certainly have to restructure its debt of more than $20 billion, big investors such as Morgan Stanley and Amundi have warned.
The crisis comes in September, when $1.2 billion in bond payments are due. Aid and reserves mean Kyiv could potentially pay. But with state-owned Naftogaz this week asking for a two-year debt freeze, investors suspect the government will follow suit.
Tunisia
In Africa, there is a group of countries turning to the IMF, but Tunisia appears to be one of the most threatened.
A budget deficit of nearly 10 percent, one of the highest public sector wage bills in the world and fears that securing or at least sticking to an IMF program could be difficult due to pressure from President Qais Syed to strengthen his power and the powerful , the country’s unruly union.
Spreads on Tunisian bonds – the premium investors demand to buy the debt over US bonds – have risen to more than 2,800 basis points and, along with Ukraine and El Salvador, Tunisia is on Morgan Stanley’s list of most likely to default . “The deal with the International Monetary Fund is becoming imperative,” Tunisia’s central bank chief Marouane Abbasi said.
Ghana
Rampant borrowing has sent Ghana’s debt-to-GDP ratio soaring to almost 85 percent. 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 debt interest payments. Inflation is also approaching 30 percent.
Egypt
Egypt has a debt-to-GDP ratio of nearly 95 percent and has seen one of the biggest outflows 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 repay over the next five years, including a massive $3.3 billion bond due in 2024.
Cairo devalued the pound by 15 percent and asked the IMF for help in March, but bond spreads are now over 1,200 basis points and credit default swaps (CDS), an investor hedge against risk, priced at a 55 percent chance of default at payment.
However, Francesc Balcells, IT director of EM debt at FIM Partners, estimates that roughly half of the $100 billion Egypt must pay by 2027 is to the IMF or bilaterally, mainly in the Gulf. “Under normal circumstances, Egypt should be able to pay,” Balcells said.
Kenya
Kenya spends approximately 30 percent of revenue 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 due in 2024.
Regarding Kenya, Egypt, Tunisia and Ghana, David Rogovich of Moody’s said: “These countries are the most vulnerable just because of the amount of outstanding debt relative to reserves and fiscal challenges in terms of stabilizing the debt burden.”
Ethiopia
Addis Ababa plans to be one of the first countries to receive 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 service its only $1 billion international bond.
El Salvador
Bitcoin becoming legal tender has all but closed the door on the IMF’s hopes. Confidence has sunk to the point where $800 million in six-month bonds are trading at a 30 percent discount and longer-dated bonds at a 70 percent discount.
Pakistan
Pakistan struck a landmark deal with the IMF this week. The breakthrough could not be more timely as high energy import prices pushed the country to the brink of a balance of payments crisis.
Foreign currency reserves fell to $9.8 billion, barely enough for five weeks of imports. The Pakistani rupee weakened to record lows. The new government must quickly cut spending now that it is spending 40 percent of its revenue on interest payments.
Belarus
Western sanctions drove Russia into bankruptcy last month, and Belarus now faces the same harsh treatment it faced Moscow in the campaign against Ukraine.
Ecuador
The Latin American country went into default just two years ago but has been rocked back into crisis by 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 raised its forecast for a public sector fiscal deficit to 2.4 percent of GDP this year and 2.1 percent next year. Bond spreads exceeded 1,500 basis points.
Nigeria
Bond spreads are just over 1,000 basis points, but Nigeria’s next $500 million bond payment in a year should be easily covered by reserves that have steadily improved since June. However, it spends almost 30 percent of government revenue to pay interest on its debt.
“I think the market is overestimating a lot of these risks,” said Brett Diment, head of emerging market debt at investment firm abrdn.
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