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Speaking at the forum in Boao, the Asian equivalent of the World Economic Forum in Davos, IMF chief Kristalina Georgieva called on countries with strong economies to help their “troubled” colleagues. Become Robin Hoods, so to speak.
The only problem is the timing: the U.S. still hasn’t solved the structural problems in the banking sector yet, Britain cannot cope with inflation, and the Eurozone is experiencing a decline in consumer and business sentiment.
Until the above problems are resolved, the developed nations won’t have time for Argentina, Sri Lanka, or Turkey. On the other hand, they should not let the situation take its course, as it could lead to a new wave of defaults and pressure on the debt market. As a result, both debtors and creditors will lose.
Talking about bad debts, according to Fitch Ratings, there have been 14 separate default events since 2020, across nine different sovereigns (Argentina, Ecuador, Suriname, and Ukraine as well as those currently in default) compared with 19 defaults across 13 different countries between 2000 and 2019.
Five countries are currently in default – Belarus, Lebanon, Ghana, Sri Lanka, and Zambia. In addition, eight government bonds are rated CCC+ or lower. Further tightening of QE by the Fed would only fuel the fire… Markets, however, remain broadly optimistic – US Dollar Index trades below the 103 level, and gold (XAUUSD) remains in its sideways trade…
Who you should be keeping an eye on? Argentina, Egypt, Ghana, Kenya, Lebanon, Nigeria, Pakistan, Sri Lanka, Tunisia, Ukraine, and Venezuela. And Russia? There is a paradox here, as the country has the money but cannot transfer it due to sanctions and restrictions.
Finally, yet importantly, who could suffer the most from defaults in EM? China. According to AidData, since 2000 the celestial authorities have transferred about $240 billion to more than 20 countries, including Argentina, Mongolia, Pakistan, and Turkey.
