According to Reuters, the persistent and damaging debt
problems gripping a number of developing nations will be a core topic during
the G20 summit in Delhi next month. Following is the recap of economies in the
countries currently facing problems:
ZAMBIA
Zambia was the first African country to default during the
COVID-19 pandemic and after a long-awaited burst of progress in recent months
finally looks to be closing in on a repair plan.
In June, it clinched a US$6.3 billion debt rework
deal with the Paris Club creditor nations and its other big bilateral lender
China. The details are still being worked on, but the government also hopes to
reach a deal in the coming months with the international funds that
hold its unpaid sovereign bonds.
The progress has also been cheered as a success for the
struggling G20 Common Framework initiative, which was set up during the pandemic
to try to streamline debt restructurings but has been hard to make work in
practice.
SRI
LANKA
Sri Lanka announced a debt overhaul plan at the
end of June and has continued to make progress since, albeit not everywhere.
Nearly all holders of its domestic, dollar-denominated Sri
Lanka Development Bonds (SLDBs) agreed to exchange their bonds into five new
Sri Lankan rupee-dominated notes that will mature between 2025 and 2033.
Another part of the domestic debt plan has faced delays,
though, with a key deadline on a Treasury bond exchange delayed three times and
now set for Septemer 11, 2023.
Central bank chief Nandalal Weerasinghe has said the
country's big foreign creditors such as India and China are awaiting the
conclusion of the domestic debt operation before continuing discussions.
He said negotiations will be held in parallel with the first
review of its US$2.9 billion International Monetary Fund (IMF) bailout program
due from 14-27 September. Failure to complete the domestic debt overhaul by
then could result in delays both in terms of IMF disbursements and talks with
creditors.
GHANA
Ghana defaulted on most of its external debt at the end of
last year. It is the fourth country to seek a rework under the Common
Framework and is aiming to reduce its international debt payments by US$10.5
billion over the next three years.
Its progress has been relatively swift compared to the likes
of Zambia. The government recently agreed to tackle roughly US$4 billion of its
domestic debt via a pension fund debt swap operation and a dollar-denominated
bonds exchange.
It has sent a restructuring plan to its official sector -
wealthier government - creditors and its finance minister has said he also
expects to reach a deal with the country's bondholders by the end of the year.
The funds know it will require them to write off money but
hope it could also include a recovery instrument that would mean Ghana pays
back more of that money over time if its economy recovers quickly.
PAKISTAN
Pakistan needs upwards of $22 billion to service
external debt and pay other bills for fiscal year 2024.
A caretaker administration is in charge until an election
that must take place by November. Inflation and interest rates are at historic
highs, and it is struggling to rebuild from devastating 2022 floods.
In June 2023, Pakistan reached an 11th-hour deal with the
IMF for a US$3 billion bailout, and Saudi Arabia and the UAE followed with US$2
billion and US$1 billion cash infusions.
Reserves, which had fallen to US$3.5 billion, had rebounded
to US$7.8 billion by late August. Observers say it could have enough to make it
to the elections but there are major questions about how long it will be able
to avoid default without huge support.
TUNISIA
The North African nation, reeling from multiple hits since a
2011 revolution, is facing a full-blown economic crisis.
Most debt is internal but foreign loan repayments are due
later this year and credit ratings agencies have said Tunisia could default.
President Kais Saied has slammed the terms required to unlock
US$1.9 billion from the IMF as diktats that he will not meet.
Saudi Arabia pledged a US$400 million soft loan,
and a US$100 million grant, but the tourism-dependent economy continues to
grapple with shortages in imported food and medicine. The European Union has
offered about US$1.1 billion (one billion euros)in support but that appears to
be mostly pegged to the IMF deal or reforms.
EGYPT
Egypt remains another of the big countries seen as at risk
of falling into trouble. North Africa's largest economy has around US$100
billion of hard currency - mainly dollar-denominated - debt to pay over the
next five years, including a meaty US$3.3 billion bond next year and the
government spends over 40% of its revenues just on debt interest payments.
Cairo has a US$3 billion IMF program and has devalued the
pound by roughly 50% since February 2022. But a privatization plan is still on
the go-slow and last month it veered away from its IMF plan by saying it would
keep subsidized electricity prices unchanged until January.
Some of its government bonds are changing hands at half
their face value and analysts think a key factor in whether it can get back on
track is the amount of support wealthy Gulf nations such as Saudi Arabia
provide going forward.
EL
SALVADOR
El Salvador has shifted from doom and default to bond
market darling, propelled by two surprise debt buybacks and the appointment of
a former IMF official as adviser to the finance ministry.
In summer 2022, its 2025 eurobond fell to just under 27
cents on the dollar, weighed down by high debt service costs and worries over
its financing plans and fiscal policies.
The same bond traded at 91.50 cents on August 31, and its
debt-to-GDP ratio stood at 77% in December 2022, the lowest since 2019, and is
forecast to drop another percentage point this year, according to Refinitiv
data.
It’s now relatively light debt repayment schedule through
2027, and the sky-high popularity of President Nayib Bukele, has assuaged fears
the country could default.
KENYA
The East African nation's public debt stands at nearly 70%
of GDP, according to the World Bank, putting it at high risk of debt distress.
President William Ruto's government has moderated spending
and proposed a raft of tax hikes, assuaging some concerns of an imminent
default.
The African Development Bank is in talks with Kenya over US$80.6
million to help it plug its financing gaps this year, and it is also discussing
budgetary support from the World Bank.
But concerns remain; Ruto's political opposition has opposed
many of his tax hikes, and protests have forced him to pause some
reforms, such as fuel subsidy cuts.
UKRAINE
Ukraine froze debt payments in 2022 in the wake of
Russia's invasion. It has said it is likely to decide early next year whether
to try to extend that agreement or begin looking at potentially more
complex alternatives.
Top institutions estimate the post-war rebuild cost will be
at least one trillion euros, and the IMF estimates Ukraine needs $3-$4
billion a month to keep the country running.
If the war with Russia is not won or at least eased to a
much lower intensity by next year, its debt restructuring dilemma will also
have to factor in the November 2024 US Presidential election and the degree of
support it would receive should Donald Trump or another Republican candidate
win office.
LEBANON
Lebanon has been in default since 2020 with few signs
its problems will be resolved any time some.
The IMF has issued stark warnings, but one bit of
progress in the last couple of months has been a proposal by the central bank
to lift the long-time peg on the country's local currency,
