Rapidly rising Treasury yields have brought back to emerging markets fears of a potential wave of defaults, with investors questioning which countries struggling with heavy debt loads will miss payments or be forced to restructure first.
Hopes for quick recoveries from defaults have also been dashed. Restructuring negotiations in Sri Lanka and Ghana are dragging on, and Zambia plans to sign a deal to restructure $6.3 billion in debt by the close of International Monetary Fund meetings this week. Plus, repaying debt is more difficult with weaker exchange rates. Currency losses over the past year range from 5% against the dollar in Ethiopia, to 57% in Argentina.
“It would be strange if this current ascent in bond yields ended without significant casualties in the global financial system,” said Arthur Budaghyan, chief emerging-market strategist at BCQ Research. Sri Lanka: It suspended payments in April 2022 and is still looking to restructure its debt. Officials target a deal by the end of the year, with expectations building that Marrakesh could provide an opportunity for an initial agreement at least with bilateral creditors including the US, Japan and India, if not China.Egypt: It’s been unable to access the next tranche of its IMF loan almost a year after the Washington-based lender extended a $3 billion rescue package.
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