Who will follow Sri Lanka into a debt crisis?
Sri Lanka defaulted on its debt in May as soaring global food prices and a tourism slowdown collided with years of profligate state spending. Which countries could follow?
Sri Lanka will not be the last country to plunge into a debt crisis. The island nation defaulted in May this year as soaring global food prices and a tourism slowdown caused by Covid-19 collided with years of profligate state spending. Inflation is running at 54.6% and essentials such as food and medicine have run short.
Which countries could follow? The situation is especially acute in Africa, say Danny Bradlow and Magalie Masamba on The Conversation: “22 countries are either in debt distress or at high risk of debt distress”, according to data from the International Monetary Fund (IMF). While most African debt is owed to governments in rich countries or “multilateral institutions like the World Bank”, a growing share is held by private investors.
“The amount of bonds issued by African states on international markets has tripled in the last ten years.” These instruments have been bought by “insurance companies, pension funds, hedge funds” and investment banks. The countries with the shakiest debt positions include Mozambique, Zimbabwe, Malawi and Zambia. Governments borrowed freely after the financial crisis, says The Economist. “In 2019 public debt stood at 54% of GDP across the emerging world.” Budget deficits then soared amid the pandemic, but now the bill is coming due. A global slowdown and tighter “financial conditions will be more than some governments can bear”.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Debt relief is on the international agenda, but the trouble is that lending is less transparent than it used to be because of China’s emergence as the world’s biggest bilateral creditor. Work by Sebastian Horn and Christoph Trebesch of the Kiel Institute and Carmen Reinhart of Harvard University suggests that “almost half of China’s lending abroad is unreported”.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Alex Rankine is Moneyweek's markets editor
-
Investing in pharmaceutical companies? The pipeline is key
A strong pipeline is all-important for pharmaceutical companies. We highlight the most interesting candidates.
By Dr Mike Tubbs Published
-
RICS: Property sales rise as interest rates fall and stamp duty hike looms
Estate agents are feeling bullish about the market, with house prices forecast to rise over the next three months. But difficulties continue to mount for renters
By Ruth Emery Published
-
Halifax: House price slump continues as prices slide for the sixth consecutive month
UK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
By Kalpana Fitzpatrick Published
-
Rents hit a record high - but is the opportunity for buy-to-let investors still strong?
UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
By Marc Shoffman Published
-
Pension savers turn to gold investments
Investors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
By Ruth Emery Published
-
Where to find the best returns from student accommodation
Student accommodation can be a lucrative investment if you know where to look.
By Marc Shoffman Published
-
Best investing apps
Looking for an easy-to-use app to help you start investing, keep track of your portfolio or make trades on the go? We round up the best investing apps
By Ruth Emery Last updated
-
The world’s best bargain stocks
Searching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
By Andrew Van Sickle Published
-
Revealed: the cheapest cities to own a home in Britain
New research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
By Ruth Emery Published
-
UK recession: How to protect your portfolio
As the UK recession is confirmed, we look at ways to protect your wealth.
By Henry Sandercock Last updated