Market: The weight of emerging debt at its highest again, warns the IIF
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by Rodrigo Campos

NEW YORK (Reuters) – The debt ratio of emerging countries returned to an all-time high in the third quarter despite the fall of 6.4 trillion in the stock of global debt to 290 trillion, thanks to the strength of the dollar and the slowdown in emissions, shows a report from the Institute of International Finance (IIF) on Tuesday.

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Widening budget deficits and slowing growth have pushed up the debt-to-gross domestic product (GDP) ratio of developing economies to 254%, the record reached in the first quarter of 2021, specifies the “Global Debt Monitor” of the ‘IIR.

The total amount of debt of these countries has however decreased, to 96,200 billion dollars against 98,700 billion three months earlier.

Globally, the debt-to-GDP ratio fell for the sixth consecutive quarter, to 343%.

Soaring energy and food prices pushed up interest rates and financing costs as governments increased public spending, and therefore their borrowing needs, to support economic growth. activity.

According to the IIF, countries that borrow at high yield have seen their “spreads” (the difference between their financing rate and benchmark rates) widen by around 400 basis points on average this year.

“In the face of tighter financing conditions globally, access to international markets has become even more difficult this year for many high yield borrowers,” writes Emre Tiftik, director of sustainability research at the IIF and co-author of the report.

DOLLAR DEPENDENCE REMAINS STRONG

“The overall interest burden of sovereign borrowers is set to increase rapidly, particularly for sub-Saharan Africa but also for emerging countries in Europe.”

The increase in debt service could particularly penalize the countries most exposed to the effects of climate change, adds the IIR in this report published two days after the end of COP27 in Cairo.

This international conference resulted in an agreement on “losses and damage” supposed to allow the financing of a compensation mechanism for the benefit of the poor countries most affected by the impact of climate change.

The IIF report also explains that despite the decrease in dependence on dollar debt in recent years, it remains high in Latin America and Africa and therefore exposes many countries to exchange rate fluctuations. .

The dollar has appreciated by nearly 12% since the start of the year against the other major currencies and by 7% against the currencies of emerging countries.

Apart from the sovereign debt market, adds the banking federation, the rise in interest rates particularly affects SMEs and low-income households, “given their heavy dependence on short-term financing”.

According to the report, one in three small businesses in advanced countries face difficulties in paying interest on their debts.

(Report Rodrigo Campos, Marc Angrand, edited by Sophie Louet)

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