The big breach? The dozen countries in the danger zone

The traditional debt crisis signs of collapsing currencies, 1,000 basis point bond spreads and burned-out foreign exchange reserves point to a record number of developing countries now in trouble.

Lebanon, Sri Lanka, Russia, Suriname and Zambia are already in default, Belarus is on the brink and at least a dozen others are in the danger zone as rising borrowing costs, inflation and debt fuel fears of an economic collapse.

Adding up the cost is dazzling. Using bond spreads of 1,000 basis points as a pain threshold, analysts estimate that $400 billion of debt is at stake. Argentina has by far the most at over $150bn, while next in line are Ecuador and Egypt at $40bn to $45bn.

Veterans of the crisis hope that many can still avoid default, especially if global markets calm down and the IMF adds to the support, but these are the countries at risk.


The world record holder for sovereign default is likely to add to his tally. The peso is now trading at a nearly 50% discount 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 does not have any substantial debt to pay until 2024, but it mounts after that and concerns have mounted that powerful Vice President Cristina Fernandez de Kirchner could push to renege on the International Monetary Fund.


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 $1.2 billion bond payments are due. The aid money and reserves mean Kyiv could pay. But with state-owned Naftogaz requesting a two-year debt freeze this week, investors suspect the government will follow suit.


Africa has a group of countries that go to the IMF, but Tunisia seems to be one of the most at risk.

A budget deficit of close to 10%, one of the highest public sector wage bills in the world and there are concerns that securing, or at least sticking to, an IMF program may be difficult given President Kais Saied’s push to strengthen their control over the power and the powerful and incalcitrant union of the country.

Tunisian bond spreads (the premium investors demand to buy debt over US bonds) have risen to more than 2,800 basis points and, along with Ukraine and El Salvador, Tunisia is in the top three on the list of Morgan Stanley likely defaulters. “An agreement with the International Monetary Fund becomes imperative,” said the head of Tunisia’s central bank, Marouan Abassi.


Angry lending has caused Ghana’s debt-to-GDP ratio to skyrocket to almost 85%. Its currency, the cedi, has lost almost a quarter of its value this year and it was already spending more than half of tax revenue paying interest on debt. Inflation is also approaching 30%.


Egypt has a debt-to-GDP ratio of close to 95% and has experienced one of the largest international cash exoduses this year: some $11 billion according to JPMorgan.

Fund firm FIM Partners estimates that Egypt has $100bn of hard-currency debt to pay off over the next five years, including a meaty $3.3bn bonus in 2024.

Cairo devalued the pound 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), an investor’s tool to hedge risk, have a 55% chance you will miss a payment.

Francesc Balcells, CIO of emerging markets debt at FIM Partners, estimates that about half of the $100bn Egypt must pay by 2027 is to the IMF or bilaterally, mostly in the Gulf. “Under normal conditions, Egypt should be able to pay,” Balcells said.


Kenya spends about 30% of 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 due in 2024.

On Kenya, Egypt, Tunisia and Ghana, Moody’s David Rogovic said: “These countries are the most vulnerable just because of the amount of debt maturing relative to reserves and the fiscal challenges in terms of stabilizing the debt burden.”


Addis Ababa plans to be one of the first countries to get debt relief under the G20 Common Framework programme. Progress has been slowed by the country’s ongoing civil war, though it continues to pay its only $1 billion international bond in the meantime.


Making Bitcoin legal tender pretty much closed the door on the IMF’s hopes. Confidence has fallen to the point where an $800 million bond due in six months is trading at a 30% discount and longer-dated bonds at a 70% discount.


Pakistan reached a crucial agreement with the IMF this week. The move couldn’t be more timely, with high energy import prices pushing the country to the brink of a balance of payments crisis.

Foreign exchange reserves have fallen to a low of $9.8 billion, barely enough for five weeks of imports. The Pakistani rupee has weakened to record lows. The new government needs to cut spending fast as it spends 40% of its income on interest payments.


Western sanctions pushed Russia into default last month and Belarus now faces the same harsh treatment after standing with Moscow on the Ukraine campaign.


The Latin American country went into default just two years ago, but has been thrown into crisis again 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 has raised its public sector fiscal deficit forecast to 2.4% of GDP this year and 2.1% next year. Bond spreads have exceeded 1,500 bps.


Bond spreads are just over 1,000 bps, but Nigeria’s next $500m bond payment a year from now should be easily covered by reserves that have been steadily improving since June. However, it spends nearly 30% of government revenue paying interest on its debt.

“I think the market is overpricing a lot of these risks,” said Brett Diment, head of emerging markets debt at investment firm abrdn.

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