Sixty-nine of the world’s poorest nations have $62 billion coming due this year in foreign debt payments, 35 percent more than during last year, the World Bank reported.
Also, large numbers of those nations’ sovereign bonds are now maturing.
Payments will remain sharply higher through 2024 for these nations because of high-interest rates and because many had debt payments deferred during the COVID War. Those payments are now coming back on schedule.
This combination of unhappy circumstances will block emerging nations from making necessary investments in health, education, and other social goals and will drive some to default, the bank noted.
“The increased liquidity pressures in poor countries go hand in hand with solvency challenges, causing a debt overhang that is unsustainable for dozens of countries,” World Bank president David Malpass said in a public statement warning of the gathering debt storm.
“With the 2022 growth outlook cut in half, interest rates much higher, and many currencies depreciating, the burden of debt is likely to increase further,” he predicted.
According to the bank’s data, about 60 percent of poor nations already are in debt distress, a “pre-default” stage in which the country’s bonds fetch interest rates at least 10 percentage points higher than the best-rated bonds, such as the U.S. treasury’s 10-year note.
Ethiopia, Pakistan, and Tajikistan are among at least 15 of the 72 emerging nations Bloomberg tracks with dollar debt trading at distressed levels.
Sri Lanka and Zambia already have defaulted; Egypt is deep in negotiations with the International Monetary Fund for a rescue loan, as is Ghana, which has seen the value of its currency cut in half this year, making it almost impossible to service its dollar-denominated debt. (See“Ghana Asks to Restructure Debt to Stave Off Default,” 29 Nov 2022.)
Central banks in many of the countries have had to raise interest rates to attract bond buyers to keep their debt loads above water. As a result, the countries have less money to meet human needs and make social investments.
Over the next five years, developing nations will need to come up with as much as $2.5 trillion to pay interest as rates rise around the world and a slowing global economy cuts revenues for resource-exporting nations, according to a report by the nonprofit Finance for Development Lab.
“Current costs of funding make debt service hard to sustain, with an expected peak in 2024-25,” according to the authors. “If such conditions were to hold, a significant liquidity crisis would quickly turn into a widespread solvency crisis.”
TRENDPOST: In “Strong Dollar Means Weakness in Emerging Nations” (12 Oct 2022), we pointed out that many developing countries were deep in debt before the COVID crisis and, seduced by low-interest rates, borrowed even more to survive 2020.
With prices and interest rates rising and economies slowing in China, the U.S., and around the world, emerging nations are moving steadily toward a new debt crisis and will appeal to the International Monetary Fund and World Bank for bailouts.
However, new rounds of rescue funding will be harder to come by.
Developed nations fund the loans and grants these global aid agencies make. With Europe and the U.S. buried under their own COVID-related debt, there will be less money to funnel to poor countries. Thus, the risk of these nations defaulting on billions of dollars in loans is real and not far off.
While Western nations are cash-strapped, China has about $16 trillion cash on hand, according to Bloomberg. China could use that wealth strategically to give aid to countries with resources—minerals, oil, or cheap labor—that China might use in return. China has made similar deals in the past, which we noted in “China” (26 May 2020).
TREND FORECAST: As we have long forecast and detailed, as emerging market economies submerge, there will be increasing demonstrations as people take to the streets to protest the lack of basic living standards, government corruption, crime, and violence, all part of our long-range Top Trend of New World Disorder.
These events will, in turn, drive more people from their home countries to seek refuge in safe-haven nations—and in those nations where they seek refuge, there will be growing anti-immigration, anti-establishment, populist movements to stop the refugees from entering their nations.
We already are seeing this trend strengthening in the U.S., the U.K.—a key driver of the Brexit vote—and in Italy’s recent election, where a fervent anti-immigrant, nationalist message put the granddaughter of World War Two-era fascist dictator Benito Mussolini into the prime minister’s chair.