A World of Dangerous Debt Limbo

WASHINGTON, DC – Like the United States and other rich countries, developing countries had little choice but to borrow and spend heavily to deal with COVID-19. Poor countries’ already-high debt levels ballooned to a 50-year peak as a result. Then came the Russian invasion of Ukraine, which caused record increases in food, fuel, and fertilizer prices. And now that rising inflation has prompted interest-rate increases in advanced economies, developing countries’ currencies are declining in value, adding to their debt woes.

In March, the World Bank estimated that a dozen developing countries could default on their debt over the next 12 months. The warning signs are everywhere. Investors have pulled $50 billion from emerging-market bond funds this year, and the debt of nearly one-third of these countries is trading at distressed levels. Without market access, many governments will struggle to roll over their external debt. According to our own calculations, low-income countries alone face nearly $15 billion in Eurobond rollovers over the next three years.

This year’s massive global food crisis has made matters worse. A spate of sovereign-debt crises could trigger humanitarian emergencies in the developing world, as governments run out of foreign-exchange reserves with which to fund basic food imports, as happened in Sri Lanka.

To continue reading, register now.

Subscribe now for unlimited access to everything PS has to offer.


As a registered user, you can enjoy more PS content every month – for free.