Which Countries are at Financial Crisis Risk?

Traditional debt crisis indicators such as collapsing currencies, bond spreads over 1,000 basis points, and depleted FX reserves indicate that a record number of developing economies are currently in trouble.

Lebanon, Sri Lanka, Russia, Suriname, and Zambia are already in default, Belarus is on the verge of default, and at least a dozen more countries are in the danger zone due to rising borrowing rates, inflation, and debt. However, Bangladesh and India are not in the list of these countries. Only Pakistan among the South Asian countries has been included.  

The total expense is eye-popping. Using bond spreads of 1,000 basis points as a pain threshold, economists estimate that $400 billion in debt is in play. Argentina has the most, with about $150 billion, followed by Ecuador and Egypt with $40 billion to $45 billion, Reuters reports.

Crisis veterans are hopeful that many can yet avoid default, especially if global markets stabilize and the IMF provides assistance, although these countries are at risk.


The record-holder for sovereign default is expected to add to its total. On the illicit market, the peso currently trades at a discount of about 50 percent, reserves are dangerously low, and bonds trade at just 20 cents per dollar – less than half of what they will be after the country’s debt restructuring in 2020.

The government does not have any significant debt to service until 2024, but after that, it increases dramatically, and there are concerns that the influential vice president Cristina Fernandez de Kirchner may attempt to renege on the International Monetary Fund.


As a result of Russia’s invasion, Ukraine will almost likely have to restructure its debt of more than $20 billion, warn major investors such as Morgan Stanley and Amundi.

In September, when $1.2 billion in bond payments are due, a crisis arises. Aid funds and reserves indicate that Kiev has the potential to pay. Investors believe the government will follow the lead of state-owned Naftogaz, which last week requested a two-year debt freeze.


Tunisia appears to be among the most vulnerable of the African nations seeking IMF assistance.

A nearly 10 percent budget deficit, one of the largest public sector salary bills in the world, and concerns that getting or at least adhering to an IMF programme may be difficult due to President Kais Saied’s efforts to consolidate power and the country’s powerful, intransigent labor union.

Spreads on Tunisian notes – the premium investors demand to buy the paper instead of U.S. bonds – have climbed to over 2,800 basis points, and together with Ukraine and El Salvador, Tunisia is one of Morgan Stanley’s top three countries most likely to default. “A agreement with the International Monetary Fund becomes vital,” stated the head of the Tunisian central bank, Marouan Abassi.


Ghana’s debt-to-GDP ratio has risen to around 85 percent due to frantic borrowing. Its currency, the cedi, has lost roughly a quarter of its value this year, and debt interest payments already consume more than half of tax receipts. Inflation is also approaching 30 percent.


According to JPMorgan, Egypt has had one of the largest outflows of overseas capital this year, almost $11 billion. Egypt has a debt-to-GDP ratio of nearly 95%.

FIM Partners believes that Egypt will owe $100 billion in foreign currency debt over the next five years, including a hefty $3.3 billion bond in 2024.

In March, Cairo devalued the pound by 15 percent and requested assistance from the IMF, but bond spreads are now above 1,200 basis points and credit default swaps (CDS), a risk-hedging tool for investors, pricing in a 55 percent likelihood of payment default.

Francesc Balcells, chief investment officer of emerging market debt at FIM Partners, believes that about half of the $100 billion that Egypt must pay by 2027 is to the IMF or bilateral creditors, primarily in the Gulf. Balcells stated, “Under normal circumstances, Egypt should be able to pay.”


Kenya allocates approximately 30 percent of its income on interest payments. It presently has no access to financing markets and its bonds have lost over half of their value, which is problematic given that a $2 billion bond is due in 2024.

Moody’s David Rogovic stated of Kenya, Egypt, Tunisia, and Ghana, “These nations are the most susceptible due to the quantity of debt maturing relative to their reserves and the fiscal issues associated with stabilizing debt burdens.”


Addis Abeba intends to be one of the first nations to receive debt relief under the G20 Common Framework. The country’s prolonged civil war has slowed progress, but it continues to pay interest on its lone $1 billion international bond.


Making bitcoin legal tender effectively eliminated IMF ambitions. A $800 million bond expiring in six months now trades at a 30 percent discount, while longer-term bonds are trading at a 70 percent discount.


This week, Pakistan reached a vital IMF agreement. The discovery could not have come at a better moment, as the country’s balance of payments was on the verge of collapse due to high energy import prices.

Foreign currency reserves have dropped as low as $9.8 billion, which is hardly enough to cover imports for five weeks. The Pakistani rupee has reached an all-time low. As interest payments account for forty percent of the government’s revenues, immediate spending cuts are necessary.


Russia was forced into default by Western sanctions last month, and Belarus is now facing the same harsh fate for standing with Russia in the Ukraine conflict.


The Latin American nation just defaulted on its debts two years ago, but violent protests and an effort to unseat President Guillermo Lasso have thrown it back into turmoil.

JPMorgan has revised its public sector budget deficit prediction to 2,4 percent of GDP this year and 2,1 percent of GDP next year due to the country’s high level of debt and government subsidies for fuel and food. Bond spreads have surpassed 1,500 basis points.


Bond spreads are just over a thousand basis points, but Nigeria’s next $500 million bond payment in a year should be readily covered by reserves that have been steadily increasing since June. However, about 30 percent of government revenues are used to pay interest on the debt.

Brett Diment, the head of emerging market debt at the investment firm abrdn, stated, “I believe the market overprices a number of these risks.”

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