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Postado dia 17/07/2022 às 19:12:32

These Countries At Risk Of A Deep Economic Crisis

A rampant dollar at a two-decade high points to a record number of developing nations now in dire straits.

A rampant dollar at a two-decade high crushing most currencies' buying power in international markets, fears of an economic downturn and burned foreign exchange reserves point to a record number of developing nations now in dire straits.

According to Reuters, a record number of developing countries are currently in difficulty as several countries are exhibiting economic malaise similar to Sri Lanka, including typical debt crises, indications of collapsing currencies, 1,000 basis point bond spreads, and FX reserves. See the list below.

Rising borrowing prices, inflation, and debt all fuel concerns of an economic collapse, with analysis showing that Sri Lanka, Lebanon, Russia, Suriname, and Zambia are already in debt default, Belarus is on the verge of default, and at least another dozen countries are in danger of default.

The total price is staggering. Analysts estimate that $400 billion of debt is at risk using 1,000 basis point bond spreads as a pain threshold. Argentina is the biggest, with over $150 billion, followed by Ecuador and Egypt, each with between $40 and $45 billion.

The Russian rouble and the Brazilian real are the only currencies that have gained against the dollar this year, which many market experts say is because of capital controls.

Investors are questioning how long the dollar surge can last, but many are waiting to turn bearish on the dollar before doing so. Compared to a basket of peers, the dollar has increased by almost 13 per cent this year, reaching a two-decade high.

It is also on track to have its best year since 1997, thanks to a hawkish Federal Reserve and investors looking for safety from the uncertain global economy.

See below a list of countries at risk, based on a Reuters report:

Argentina

The world leader in sovereign default appears certain to increase its total. In the illicit market, the peso currently trades at a near 50 per cent discount, reserves are at an all-time low, and bonds are now worth 20 cents on the dollar, less than half of their post-2020 debt restructuring value.

Although the government won't have much debt to pay off until 2024, it will start to pile up, and there are growing fears that strong vice president Cristina Fernandez de Kirchner may try to force Argentina to break its commitment to the International Monetary Fund. 

Belarus 

After standing beside Moscow in the Ukraine campaign, Belarus is now subject to the same harsh penalties that forced Russia into default last month.

Ecuador

The Latin American nation only went into default two years ago, but violent protests and an effort to remove President Guillermo Lasso have plunged it into turmoil.

It has a large debt, and JPMorgan has increased its prediction for the public sector fiscal deficit to 2.4 per cent of GDP this year and 2.1 per cent of GDP next year because the government is subsidising food and fuel. Spreads on bonds have surpassed 1,500 bps.

Egypt 

With a debt-to-GDP ratio of about 95%, Egypt has experienced one of the largest outflows of foreign funds this year, JPMorgan estimates, totalling about $11 billion.

Egypt is expected to have to pay $100 billion in hard currency debt over the next five years, including a sizable $3.3 billion bond, in 2024, according to to fund management company FIM Partners.

Cairo reduced the pound's value by 15 per cent and requested assistance from the IMF in March. Still, bond spreads have since risen to over 1,200 basis points, and credit default swaps (CDS), an instrument used by investors to manage risk, now factor in a 55 per cent possibility that Cairo will default on a payment.

However, according to Francesc Balcells, CIO of EM debt at FIM Partners, about half of the $100 billion Egypt must pay by 2027 would go to the IMF or bilateral agreements, mostly in the Gulf. Egypt "should be able to pay under normal circumstances," he added.

El Salvador

Trust levels plummeted after it made bitcoin a legal tender and closed the door to IMF hopes. Investors' faith has fallen to the extent that an $800 million bond with a six-month maturity trades at a 30 per cent discount and longer-term bonds at a 70 per cent discount.

Ethiopia 

Ethiopia is a financial powerhouse in Eastern Africa and has seen a great economic expansion in recent years. Addis Abeba, the nation's capital, is ranked as the eighth richest city in Africa and one of the richest in the continent.

But one of the first nations to receive debt relief under the G20 Common Framework programme will be Addis Abeba. Although the country's prolonged civil war has slowed progress, it is nonetheless paying interest on its lone $1 billion international bond. 


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