9 Sovereigns Defaulted on Debts since 2020 –Fitch

Amidst rising global debts, there have been 14 separate default events since 2020, across nine different sovereigns, a marked increase compared with 19 defaults across 13 different countries between 2000 and 2019, says Fitch Ratings in a new report.

In a report, a record five Fitch-rated sovereigns are in default, including Belarus, Lebanon, Ghana, Sri Lanka and Zambia following economic pressures that followed covid-19 pandemic.

Moreover, Fitch said it rates eight sovereigns at ‘CCC+’ or below, and a further nine at ‘B-’, signifying a weak credit profile. Some of these countries are African with moderate growth economic outlook.

The average cumulative five-year default rate between 1995 and 2021 for sovereigns rated ‘C’ to ‘CCC+’ by Fitch was 40.6%, it said.

The rating agency said the median general government debt to gross domestic product (GDP) ratio of Fitch-rated sovereigns rose steadily from 31% in 2008 to 48%.

The driving force has been the Covid-19 pandemic, which facilitated more borrowing by frontier markets’ easier access to the Eurobond market and borrowing from China.

Against this backdrop, Fitch said frontier markets with limited buffers were poorly placed to cope with the severe shocks from the pandemic.

This also includes the impact of Russia’s invasion of Ukraine on food and energy prices, global inflation and the subsequent abrupt tightening in monetary policy.

On average, it said sovereign defaults in 2020-2022 are taking longer to resolve, albeit they constitute a limited sample size.

The median duration of defaults for Fitch-rated sovereigns since 2020 is 107 days (and five are uncured) compared with 35 days for all defaults since 2000.

According to Fitch, slow restructurings do not serve the interests of either debtors or creditors and add to the cost of financing.

The rating agency noted that the Common Framework was intended to facilitate creditor coordination but, so far, is not proving effective in resolving crises quickly.

Widespread reports indicate that a key reason for delays is weak coordination among Chinese stakeholders and China’s demands that multilateral debt is included in debt restructuring and that there are no haircuts, just maturity re-profiling.

Ukraine has defaulted following distortion in economic activities amidst the ongoing war with Russia. #9 Sovereigns Defaulted on Debts since 2020 –Fitch