The total debt—corporate, financial-sector, government, and household borrowings—among 30 large modest- and middle-income countries had reached $98 trillion at the end of 2022, according to a report by the International Institute of Finance (IIF).
The debt load was $96 trillion a year earlier and $75 trillion in 2019 before the COVID War as the worldwide economic shutdown set in.
In the first 12 days of this year, 14 low-income nations sold another $40 billion worth of bonded debt, as we reported in “Emerging Nations Raise $40 Billion in Bonds This Year” (17 Jan 2023).
Government debt averaged 65 percent of GDP among the 30 nations surveyed, reaching the highest proportion on record, compared to 55 percent pre-COVID.
Emerging nations’ debt crisis has been worsened by the dollar’s strength through much of 2022, which drew energy from the U.S. Federal Reserve’s series of interest rate increases. (See “Strong Dollar Means Weakness in Emerging Nations” 11 Oct 2022.)
The higher rates drew investment toward the dollar and away from shakier economies and raised interest payments for those economies, whose debts often are denominated, and must be repaid in dollars.
Although the dollar’s value has softened since last fall, 2023 will be “another challenging year” for poorer countries as the dollar remains strong by historical standards, sovereign debt research chief Ed Parker at Fitch’s said at an IIF event earlier this month.
Debt loads and annual deficits will remain well above pre-COVID levels, he added.
Among the 30 nations in the IIF study, Egypt and Pakistan are seen as being at particular risk of default.
Both recently devalued their currencies (see “Dollar’s Strength Forces Currency Devaluations Abroad” 21 Feb 2023) as part of their proposals to the International Monetary Fund for emergency bailouts.
Ghana and Sri Lanka defaulted on their foreign debts last year after the cost of debt payments compared to government revenue reached “exceptional levels,” Parker said.
TREND FORECAST: As we warned in “Emerging Markets’ Stock and Bond Run is Running Down” (21 Feb 2023), emerging nations will remain a speculative or short-term investment play as long as inflation remains above 2 percent.
Current high food prices and rising interest rates also increase the chances that those nations will fall prey to social unrest, radical political movements, and populist or socialist governments.
As Gerald Celente often says, “When people lose everything and have nothing left to lose, they lose it.” Because we forecast a steep economic decline, our Top Trend for 2021, “New World Disorder” will escalate as people take to the streets to protest lack of basic living standards, government corruption, crime, and violence.
It will also escalate the refugee trend which in turn will also support anti-immigration, anti-establishment populist movements in nations where refugees seek safe havens.