Poorest countries face $11bn surge in debt repayments

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The world’s poorest countries are facing a surge in debt repayments of $ 10.9 billion this year after many have refused debt. International rescue activities Instead, we turned to the capital markets to fund our response to the pandemic.

According to the World Bank, a group of 74 low-income countries will need to repay an estimated $ 35 billion to official bilateral and private sector lenders during 2022, according to the World Bank. This is a 45% increase from 2020, the latest data available.

One of the most vulnerable countries is Sri Lanka, and rating agency S & P Global warned last week that it could default this year as it downgraded government bonds. Investors are also particularly concerned about Ghana, El Salvador and Tunisia.

World Bank President David Malpass warned that “resource extraction”. .. .. “By creditors” means “the risk of chaotic defaults is increasing.”

“Countries are facing resumption of debt repayment at the very moment when they do not have the resources to repay their debt,” he said.

This increase will cost the developing economy to take on more debt to address the economic and medical consequences of the coronavirus, as well as the cost of refinancing existing debt and resuming debt repayment suspended after the pandemic blow. It reflects the rise.

The World Bank will have a new sovereign debt crisis as about 60% of all low-income countries need or are at risk of debt restructuring, as the World Bank warned in economic forecasts. There is a possibility. Published last week..

Governments and businesses in low- and middle-income countries will issue about $ 300 billion worth of bonds each year in 2020 and 2021, one-third of pre-pandemic levels, according to data from the Institute of International Finance, a financial industry association. It is higher than that.

Despite a pandemic-led global initiative to ease the debt burden of poor countries, the imminent surge in repayments Proved a damp squib..

The Debt Suspension Initiative, launched by the G20 Group of the Great Powers in April 2020, aims to postpone about $ 20 billion payable to bilateral lenders by 73 countries between May and December 2020. I was there. Expansion Only 42 countries until the end of 2021 relieved A total of $ 12.7 billion, according to the Paris Club Group, a creditor country that helped coordinate the initiative with the World Bank and the IMF.

These countries must resume repayment this year and begin repayment of debt suspended under the scheme.

Meanwhile, borrowing costs are rising.

During the first two years of the pandemic, interest rate cuts by major central banks have made government borrowing relatively cheap. However, refinancing of existing debt is more expensive as investors expect the global financial situation to become more difficult later this year.

Developing countries, led by Brazil and Russia, have been aggressively raising interest rates for several months to combat the surge in inflation. However, in many countries, interest rates are still slowing down and cross-border capital is flowing out of emerging market equities and bonds.

A vertical bar graph of non-resident portfolio flows to emerging markets excluding China, $ 1 billion shows foreign investors moving away from EM assets

Ayhan Kose, Head of Economic Forecasting, World Bank, said:

Asset managers, economists and debt activists are all calling for new actions to reduce the debt burden of poor countries.

“The debt problem is growing and the financial space in developing countries will continue to shrink,” said Rebeca Grynspan, Secretary-General of the United Nations Conference on Trade and Development.

Gregory Smith, Emerging Markets Strategist at M & G Investments, said: .. .. It takes a year or two to design something to help countries in a systematic crisis. “

The most indebted countries can seek relief from the G20’s intended plans to replace DSSI. The “Common Framework” requires Participants to first agree on terms with bilateral creditors and the IMF, and then secure the same debt relief from private creditors.

However, critics say this risks blocking access to national capital markets. Only Chad, Ethiopia and Zambia have applied, and negotiations have shown little sign of progress.

“I know what it means for a country to have trouble paying its debt publicly,” Grinspan said. “The private sector will punish them. If the country has a choice, it can’t.”

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The post Poorest countries face $11bn surge in debt repayments appeared first on California News Times.

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