Emerging economies challenged with historic default on foreign debt
2 Min Read
The default comes as a result of crippling debt.
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Vendors work at a vegetable market during the pandemic in Cairo. (Reuters)
El Salvador, Ghana, Egypt, Tunisia and Pakistan - all emerging economies - will be challenged with a historic cascade of defaults amounting to a quarter of a trillion dollars of debt, which will continue to exert pressure on economies, according to Bloomberg.
Carmen Reinhard, the World Bank's Chief Economist, remarked, "With the low-income countries, debt risks and debt crises are not hypothetical," commenting, "We're pretty much already there."
Over the past six months, the number of emerging markets with sovereign debt has been doubling. The markets, trading at highly distressed levels, have indicated to experts that a default is a real possibility.
Another cause that is distressful typically arises from the "domino effect" when investors start panicking and pulling out their money out of countries with economic problems.
For instance, in June, traders withdrew $4 billion in emerging-market bonds and stocks - this would mark the fourth month in a row with outflows.
In early 2022, Sri Lanka stopped paying its foreign bondholders, along with a crippling inflation problem that has raised the cost of food and fuel, sending the country into political chaos.
Read more: Sri Lankan PM: Economy has collapsed
“Populations suffering from high food prices and shortages of supplies can be a tinderbox for political instability,” Barclays has said, as quoted by Bloomberg.
