The persistence of debt problems facing a number of countries in the developing world and their repercussions will be a major issue during the G-20 summit to be held in Delhi next month.
A Reuters report takes a look at countries currently facing difficulties, including Tunisia, Egypt and Lebanon.
Tunisia.. an economic crisis
The North African country, which has gone through a lot of hardship since the 2011 revolution, is facing an all-out economic crisis. Most of its debt is domestic, but installments on foreign loans fall due later this year.
Credit rating agencies said Tunisia might default, while President Kais Saied criticized the terms required to obtain $1.9 billion from the International Monetary Fund as “dictates” he would not fulfil.
Saudi Arabia pledged a $400 million soft loan and a $100 million grant, but Tunisia’s tourism-dependent economy still suffers from a shortage of imported food and medicine.
The European Union has offered about 1 billion euros ($1.1 billion) in support, but that appears to be mostly tied to the International Monetary Fund deal or reforms.
Egypt.. financial risks
Egypt remains one of the other major countries seen as at risk of economic stalemate.
Egypt – which has the largest economy in North Africa – has about $ 100 billion in hard currency debt, most of it denominated in dollars, and Cairo must repay it over the next five years, including a huge bond worth $ 3.3 billion next year.
The Egyptian government spends more than 40% of its revenues on debt interest payments only, has a program with the International Monetary Fund worth $3 billion, and has devalued the pound by about 50% since February 2022.
Egypt remains one of the major countries seen as at risk of economic stalemate
But the privatization plan is still moving slowly, and the government last month deviated from the fund’s plan by saying it would keep subsidized electricity prices unchanged until next January.
Some government bonds trade at half their face value, and analysts believe that the main factor that may determine whether Cairo can get back on the right track is the amount of support provided by the Gulf states.
Lebanon.. strong warnings
Lebanon has defaulted on its debt since 2020, and there is little sign that its problems are on the way to being resolved.
The International Monetary Fund had issued strong warnings, and the Central Bank of Lebanon proposed two months ago to cancel the long-standing peg of the Lebanese pound to the US dollar, in what is considered a step forward in the effort to confront the economic crisis.
Zambia.. a reform plan
Zambia was the first African country to default during the COVID-19 pandemic. And after a long-awaited series of steps over the past months, it appears it is finally getting closer to a plan for reform.
And last June, it reached an agreement to restructure debts worth $6.3 billion with the creditor countries of the “Paris Club” and with China, from which it also obtained huge loans.
Details are still being worked out, but the government hopes to reach an agreement in the coming months with international funds holding its unpaid sovereign bonds.
This progress was hailed as a success for the G20 Common Framework initiative, which was put in place during the pandemic to try to streamline debt restructuring processes, but has struggled to implement.
Sri Lanka.. fears of stumbling
Sri Lanka announced a debt reform plan at the end of June and has continued to make progress since then, but not in all parts of the plan.
Almost all the local dollar-denominated Sri Lanka Development Bond holders have agreed to exchange their bonds for five new Sri Lankan rupee-denominated notes due to mature between 2025 and 2033.
However, another part of the domestic debt plan faced a falter, with the main deadline for exchanging Treasury bonds postponed 3 times, to now September 11.
Central Bank Governor Nandalal Ferisenkah said the country’s major foreign creditors such as India and China were waiting for the process on domestic debt to be finalized before continuing discussions.
He added that the negotiations will be held in parallel with the first review of the International Monetary Fund’s bailout program worth $2.9 billion, scheduled for September 14-27.
Failure to complete domestic debt reform by then could lead to delays in IMF payments and talks with creditors.
Ghana.. restructuring
Ghana defaulted on most of its external debt at the end of last year. It is the fourth country to seek to reopen under the Common Framework and aims to reduce its international debt payments by $10.5 billion over the next three years.
Its progress has been relatively fast compared to countries like Zambia. The government recently agreed to treat nearly $4 billion of its domestic debt through a pension fund debt swap and dollar-denominated bonds.
It has prepared a restructuring plan, and the finance minister said he also expects to reach an agreement with the country’s bondholders by the end of the year.
The funds know the plan will require them to write off debt, but they hope it will also include a “recovery tool” aimed at Ghana being able to repay more of that money over time if its economy recovers quickly.
Pakistan.. an agreement with the IMF
Pakistan needs more than $22 billion to service the external debt and pay other bills for the 2024 fiscal year.
A caretaker government is in charge until elections, which must be held by next November.
Inflation and interest rates have reached historically high levels, while the country is making strenuous efforts to rebuild after devastating floods last year.
In June, the country reached a last-minute agreement with the International Monetary Fund for a $3 billion bailout, followed by Saudi Arabia and the UAE pledging $2 billion and $1 billion in cash injections, respectively.
Reserves, which had fallen to $3.5 billion, had rebounded to $7.8 billion by late August.
Observers say Pakistan may have enough to get it to the polls, but there are key questions about how long it will be able to avoid default without getting too much support.
El Salvador.. calm fears
El Salvador has gone from despair and default to a bond market favorite, spurred by two surprise debt buybacks and the appointment of a former International Monetary Fund official to advise the finance ministry.
The price of Eurobonds, due in the summer of 2022, fell to just under 27 cents on the dollar, affected by rising debt servicing costs and concerns about financing plans and fiscal policies. The same bond was trading at 91.50 cents on August 31.
The debt-to-GDP ratio reached 77% in December, the lowest level since 2019.
Its relatively light debt repayment schedule until 2027, and the high popularity of President Najib Bukele, have allayed fears that the country might default.
Major institutions estimate the cost of post-war reconstruction at at least €1 trillion
Kenya.. a debt crisis
The World Bank says the East African nation’s public debt is nearly 70% of GDP, putting it at risk of a debt crisis.
President William Ruto’s government rationed spending and proposed a raft of tax hikes, alleviating some concerns about an imminent default.
The African Development Bank is in talks with Kenya to obtain $80.6 million to help it bridge its financing gaps this year, and is also discussing budget support from the World Bank.
But concerns remain. Many of Ruto’s tax increases have been rejected by political opposition, and protests have forced him to halt reforms such as cutting fuel subsidies.
Ukraine.. rebuilding
Ukraine froze debt payments in the aftermath of the Russia war last year and has said it will likely decide early next year whether to seek an extension of the payments agreement or start looking at other, more complex alternatives.
Major institutions estimate that the cost of rebuilding after the war will be at least one trillion euros.
The International Monetary Fund estimates that Ukraine needs between $3 and $4 billion a month to keep its affairs going.
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2023-09-03 17:56:48
