By The Financial District
Dec 15, 20232 min
A debt crisis is brewing across the world’s 42 poorest countries, and by 2024, these nations — known to rich-world investors as “frontier markets” — will have to repay about $200 billion in bonds and other loans as they grapple with their $3.5-trillion debt, as reported by Ezra Fieser and Yinka Ibukun for Bloomberg News.
The bonds issued by Bolivia, Ethiopia, Tunisia, and a dozen other countries are either already in default or are trading at levels they could not pay.
The bonds issued by Bolivia, Ethiopia, Tunisia, and a dozen other countries are either already in default or are trading at levels they could not pay.
The situation is especially dire because these nations have small domestic markets and must turn to global lenders for cash to spend on hospitals, roads, schools, and other vital services.
As the Federal Reserve vows to keep US interest rates higher for longer, a once-ebullient market for debt from those countries is drying up, cutting them off from more borrowing and adding to the many rate-related risks of 2024.
“The punch bowl has been taken away,” says Sonja Gibbs, a managing director of the Institute of International Finance, which represents private and central banks, investment managers, insurers, and others in the industry.
“Global rates are considerably higher, and the incentive to invest in these markets is challenging when you can get 4% or 5% in US Treasuries.”
During the COVID-19 pandemic, rich nations printed money to hand out stimulus checks; poor ones had to borrow to keep their economies running. The easy-money policies in the wealthy world meant that investors were happy to lend in search of higher rates.
Then, poor countries faced higher food import costs caused by the Russia-Ukraine war, combined with a global spike in inflation.