Tuesday, July 18, 2023

EXTREME INDEBTEDNESS: Over 50 Countries close to Debt Default – UN...52 Nations are in Default or Close to it — with No effective System of Debt Relief

Well over 50 countries are under that distress, or facing a step away from default.
"I would argue, and I think many observers would argue, that this is not an adequate set of steps that are being taken right now," he said on the sidelines of the G20 Finance ministers and central bank governors meeting here.
  • Synopsis; The UN Development Program's administrator, Achim Steiner, has called for action to be taken concerning the debt crisis affecting developing countries and low-income countries. 

Over 50 nations are facing distress or near default. While a common framework agreement has been reached with Zambia, only four countries are currently covered. 
  • The warnings by Guterres and UNDP went largely unnoticed due to the NATO summit in Lithuania, where the US-led military bloc pledged even more funding for the conflict in Ukraine." 

17 Jul, 2023 22:00

Over 50 countries close to debt default – UN

Talks with the G20 on relief for borrowers are reportedly “not advancing at all”
Over 50 countries close to debt default – UN












"The UN Development Programme (UNDP) has issued an alarm about the plight of developing countries as a key meeting of G20 ministers in India stalls on the subject of debt relief. This follows a report last week from the UN detailing the threat of public debt to half the globe. 
G20 representatives met on Monday in Gandhinagar, Gujarat but made little to no progress in discussions about restructuring the debt held by developing nations, AP reported.
“I think the bottom line is, as of [July] 2023, the issue of debt restructuring is really not advancing at all on a scale that is called for and needed,” UNDP administrator Achim Steiner told Reuters, calling the situation a “grave concern.” 
  • Last week, UN Secretary General Antonio Guterres warned that 52 countries had no way to reduce their debt burden and were approaching default. Promoting a UN Conference on Trade and Development (UNCTAD) report on the growing problem of debt, Guterres said that 3.3 billion people lived in countries that were spending more on interest payments than on health or education.
“This is more than a systemic risk – it’s a systemic failure,” Guterres said last Wednesday.
UNCTAD specified that at least 19 developing nations spent more on interest than on education, and in another 45 it amounted to more than spending on healthcare. 
According to the UN agency, almost 40% of the world is in serious debt trouble.

Particularly alarming was the “inherent inequality in the international financial system, burdening developing countries disproportionately,” 
  • UNCTAD said, noting that African countries were paying four times more in interest than the US, and eight times more than the richest nations of Europe. 
  • Restructuring this debt is proving difficult because 62% of it is now held by private creditors, up from 47% a decade ago.
Global public debt has reached the all-time-high of $92 trillion in 2022, Guterres warned last week, in a five-fold surge since 2000. 
The UNDP has attributed the increase to the Covid-19 pandemic and the surge in inflation and interest rates. 
  • The UN agency estimated that more than 20% of the world’s population – around 1.65 billion people – are now struggling to put food on the table and subsist on less than $3.65 a day. 
The warnings by Guterres and UNDP went largely unnoticed due to the NATO summit in Lithuania, where the US-led military bloc pledged even more funding for the conflict in Ukraine." 
SG/SM/21876

Promise of Sustainable Development in Peril, Secretary-General Warns High-Level Political Forum, Urging Every Government to Strengthen Action, Make 2023 Count

Following are UN Secretary-General António Guterres’ remarks to the High-level Political Forum on Sustainable Development, in New York today:

In 2015, countries unanimously committed to the 2030 Agenda for Sustainable Development — an action plan to advance a world of peace, prosperity and dignity for all.

Today, that promise is in peril.  Halfway to the 2030 deadline the world is woefully off-track.  The Sustainable Development Goals (SDGs) Progress Report Special Edition paints a stark picture.

It shows that progress on fully half of all SDG targets is weak and insufficient.  That almost a third have stalled or gone into reverse.  That emissions continue to rise.  Gaping inequalities persist.  Hunger is back to 2005 levels.  Gender equality is 300 years away.  And on our current course, almost 600 million people will still be mired in extreme poverty by 2030.  The COVID-19 pandemic, a burgeoning climate crisis, widespread conflict, and the consequences of the Russian Federation’s invasion of Ukraine have hobbled fragile and limited progress.

But, let’s be clear:  our world was off track well before these upheavals.  Ambition, urgency and solidarity have been lacking.  So has finance.  Many countries are facing a financial abyss.  The annual SDG funding gap has risen from $2.5 trillion before the pandemic to an estimated $4.2 trillion.

Promises made on official development assistance and climate finance are not promises kept.  Governments are drowning in debt — with developing countries facing sky-high borrowing costs.  And 52 nations are in default or close to it — with no effective system of debt relief in sight.

This is the high-level political forum.  The world is crying out for high-level political action.  Action to make the Sustainable Development Goals a reality — for everyone, everywhere.  Without it, the 2030 promise is in danger of slipping away:  Sowing disillusionment, mistrust and resentment, imperilling the planet, failing women and girls, and denying opportunity and hope for millions of people.

In our dangerous and divided world, no country can afford such an outcome.  It is in all our interests to choose a different path.  The 2030 Agenda is that path.  It is a route to bridging divides, restoring trust and building solidarity.  I urge every country to make 2023 count.

Lay the ground now for coordinated efforts to get the Sustainable Development Goals on track — by making the most of the Food Systems Summit Stocktaking, the Climate Ambition Summit, the three health meetings, the preparatory meeting for the Summit of the Future, the Group of 20 (G20), the Annual Meetings of the Bretton Woods Institutions, the twenty-eighth Meeting of the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP28), and of course, above all, the SDG Summit.

Specifically, I urge every Government to come to the SDG Summit with clear plans and pledges to strengthen action in their countries to 2030.  We need ambitious national commitments and interventions to reduce poverty and inequality by 2027 and 2030.  And clear policies, investment plans and partnerships to drive progress across major SDG transitions.

We also need the SDG Summit to re-energize civil society, businesses, and others to throw their weight behind the goals – strengthening the global movement to deliver.  I welcome the engagement and moral voice of young people and civil society here this week. And I urge you to continue to fight for the SDGs.  Above all, we need the SDG Summit to send a clear message from world leaders through a strong political declaration.

As the negotiations are now in the final days, I urge each and every delegation to show flexibility and ambition so that together we rise to meet the moment.  We need a political declaration that renews and revitalizes the SDG promise;  That lays a path for faster progress on key SDG transitions, from social protection and jobs, to energy, education and more. And that sends a clear signal on finance:  by demanding urgent action to deliver the SDG Stimulus and by paving the way for much-needed reforms of the international financial architecture.  Why?  Because finance is the fuel that will drive SDG progress.

Yet, today’s international financial system is failing: It is failing to provide developing countries with long-term, affordable finance for development and climate action. And it is failing to provide those countries with a safety net in the face of shocks.

I have called for a new Bretton Woods moment.  And put forward a Policy Brief proposing how we can redesign the global financial architecture so that it operates as a global safety net for all countries and provides access to affordable long-term finance.

At the same time, we can and must act now to provide immediate relief to developing and emerging economies.  That is why I have proposed the SDG Stimulus of $500 billion per year for investments in sustainable development and climate action.  We need a massive surge in finance, including through increasing the capital base of multilateral development banks.  And through changing their business models so they leverage far more private finance at reasonable cost to developing countries.

The SDG Stimulus also calls for action on debt — urging leaders to establish a timely and effective debt relief mechanism that supports payment suspensions, for countries facing severe shocks, longer lending terms and lower rates.  And it calls for an expansion of contingency financing for countries in need, including through rechannelling special drawing rights including through multilateral development banks — the multiplier effect.  This can all be achieved now — if there is sufficient political will.

We need meaningful strides in the right direction by the end of 2023.  So, I am urging G20 countries to set a timeframe this year to establish a new debt resolution mechanism.  And developed countries to honour their commitments on climate finance:  Deliver the promised $100 billion this year, replenish the Green Climate Fund and double funding for adaptation.  This cannot wait.

Every one of our SDG goals demands that we accelerate climate action.  The World Bank estimates that up to 130 million people could be pushed into poverty by 2030 because of rising temperatures.  Already, now, today:  wildfire smoke is choking people across North America; lack of food is taking lives in the Horn of Africa; floods and hurricanes are destroying homes and wrecking livelihoods around the world.  All this when temperatures have risen 1.1°C.  Yet, current policies are taking us to an increase of 2.8°C.  This is madness.

But, it is not too late to change course.  Limiting the rise in global temperature to 1.5°C is possible if the world takes a quantum leap in climate action, together. To achieve this, I have proposed a Climate Solidarity Pact — in which big emitters make extra efforts to cut emissions and wealthier countries support emerging economies to do so.

And I have put forward an Acceleration Agenda to super-charge these efforts.  This asks countries to accelerate their net zero timelines, in line with the principle of common but differentiated responsibilities and respective capabilities, in light of different national circumstances.

This means developed countries committing to reach net zero as close as possible to 2040 and emerging economies as close as possible to 2050.  And it asks them to take concrete steps to phase out fossil fuels, to deliver climate justice, and to accelerate a just transition and a renewables revolution.

We must show that we are serious if we are to rebuild trust between nations.  By the end of COP28, I count on all G20 leaders to have committed to ambitious new nationally determined contributions.  And I urge all parties to ensure that COP28 operationalizes the loss-and-damage fund.

We face a bleak picture with challenges at every turn.  But, as we cross the halfway mark to 2030, one overriding truth stands out in my mind:  Change is possible.  Backsliding is not inevitable.  Poverty, pollution and gender inequality are not pre-ordained.  They are trends that can be reversed, problems that can be solved, tragedies that can be averted, lives that can be saved.

And together, we can deliver.  Let’s make this year count.  Let’s keep the promise.

 

HIGH-LEVEL POLITICAL FORUM,
 
12TH MEETING* (AM)
ECOSOC/7139

High-Level Political Action, Strengthened National Plans Crucial to Reach Global Goals, Senior Officials Tell Economic and Social Council Political Forum Segment

With a third of the Sustainable Development Goals stalled or in reverse, high-level political action and strengthened national plans must be implemented to achieve the 2030 Agenda, senior United Nations officials warned today at the opening of the high-level segment of the Economic and Social Council and the ministerial segment of the high-level political forum on sustainable development.

Convened under the theme “Accelerating the recovery from the coronavirus disease (COVID-19) and the full implementation of the 2030 Agenda for Sustainable Development at all levels”, the forum — which runs until 19 July — will explore policies and transformations needed to overcome the multiple crises that continue to threaten decades of progress made in development around the world.  Particular emphasis will be placed on trends and policies related to Sustainable Development Goal 6 on clean water and sanitation; Goal 7 on affordable and clean energy; Goal 9 on industry, innovation and infrastructure; Goal 11 on sustainable cities and communities; and Goal 17 on partnerships for the Goals and their linkages to other Goals.

“The world is crying out for high-level political action — action to make the Sustainable Development Goals a reality — for everyone, everywhere,” said Secretary-General António Guterres, urging every Government to come to the upcoming SDG Summit with clear plans and pledges to strengthen action in their countries.

Noting that almost 600 million people will remain mired in extreme poverty by 2030, greenhouse-gas emissions continue to rise, hunger is back to 2005 levels and gender equality is 300 years away, he underscored the need for accelerated action, including through increased investments in sustainable development and climate action.

Csaba Kőrösi (Hungary), President of the General Assembly, pointed out that the timely implementation of the Goals is being hindered because the international community inherited accumulated risks as well as old-fashioned policies, market regulations and institutions.

Spotlighting a funding shortfall that has increased to $4.2 trillion a year now from $2.5 trillion before the COVID-19 pandemic, he stressed that transition from these legacies requires “a huge amount of money”.  However, the benefits of such changes would exceed investments. “Let me invite our financing experts to calculate and quantify the benefits of sustainability transformation,” he said. 

Also addressing the opening segment, Economic and Social Council President Lachezera Stoeva (Bulgaria) highlighted the importance of local action.  Aligning national priorities with the Goals is paramount to ensuring a coherent approach to sustainable development.  “We still have seven years and victories are within our reach,” she said, encouraging local governments and communities to take ownership.

Hoesung Lee, Chair of the Intergovernmental Panel on Climate Change, said that the global warming of 1.1°C has already brought about hazards to human life and the environment.  Further warming will increase the likelihood of irreversible changes in the climate system, he warned, stressing that the deep, rapid and sustained cuts to global greenhouse gas emissions are “the best option” for sustainable development.

At the outset, two youth representatives also addressed the forum, with Asma Rouabhia, global focal point of SDG 7 Youth Constituency, underscoring that youth want to contribute and lead, but need to be given the space to make an impact. Echoing her, Jevanic Henry, member of the United Nations Secretary-General’s Youth Advisory Group on Climate Change, said youth should not be “merely a sprinkled topping” in the development agenda, but rather part of the core group of Governments, the private sector and development partners.

In the ensuing “fireside chat” featuring scientists who author the Global Sustainable Development Report 2023, Imme Scholz said that renewable energies cannot exist in parallel to fossil fuel-based energy systems; they have to remove them.  The task now is to accelerate implementation in the right direction.  Jaime Miranda pointed out that the seven years left until 2030 is “not seven years to despair” but can strategically shape the needed transformations.  “Science unites us and can help us find the path that brings us together, so we can work together for the common good,” he said, calling on all to work and take informed decisions together.

The Economic and Social Council’s high-level political forum will continue its work at 9 a.m. on Tuesday, 18 July.

Ministerial Segment — High-Level Political Forum on Sustainable Development

Opening the high-level segment of the Economic and Social Council and the ministerial segment of the high-level political forum on sustainable development, two speakers delivered a message on behalf of youth.

ASMA ROUABHIA, global focal point of SDG 7 Youth Constituency, said children do not choose where they are born.  She, as a girl from a small town on the Tunisian-Algerian border, dreamed of becoming a doctor to save people’s lives.  During the cold, snowy winters, she persisted in studying hard, believing in a better future.  Instead, she became a young advocate, committed to initiating solution-oriented approaches to solving many problems like poverty and hunger facing her community and the world.  Youth want to contribute and lead.  But, they need to be recognized, heard, valued, equipped, empowered, consulted, involved in the policies and given the space needed to make an impact.  “My inner child wants to live in a green, safe, tolerant and just world!” she said.

JEVANIC HENRY, member of the United Nations Secretary-General’s Youth Advisory Group on Climate Change, said the COVID-19 pandemic clearly highlighted the need for urgent course correction in the development agenda.  “2015 was the time for talking; in 2023, we are slowly walking, but towards failure; post-2023, we need to start running towards delivery of the SDG [Sustainable Development Goal] agenda,” he pointed out.  Young people, like him, from a small island developing State and other developing countries, are bearing the continuous burden or threat of a loss of development gains due to multiple crises.  “No more should youth be seen in isolation or merely a sprinkled topping in the development agenda, but rather part of the core group” including Government, the private sector and development partners.  Youth will remain relentless in calling for meaningful participation, remain steadfast in calling for accountability on their commitments and stand ready to work in partnerships with all, he emphasized.

Delivering opening remarks, LACHEZERA STOEVA (Bulgaria), President of the Economic and Social Council, said the effects of the COVID-19 global pandemic, coupled with the ongoing war in Ukraine, have taken a toll on people across the planet.  Just two weeks ago, the hottest days on Earth ever were recorded globally, a dooming record that probably will be broken again and again.  “We are past the point of urgency for action, we are at the point of alarm,” she declared, adding:  “Yet, this is not the time to panic; it is the time to act.”  To accelerate progress towards the Sustainable Development Goals, it is essential to emphasize innovation, technology and forge high-impact partnerships.  Collaboration among Governments, civil society, the private sector and academia will play an increasingly crucial role in driving meaningful change.

Further, countries must integrate the Goals into their national development plans and policies, she continued.  Aligning national priorities with the Goals is paramount to ensuring a coherent approach to sustainable development.  Halfway to 2030, and yet nowhere near to achieving the Goals, she said:  “We still have seven years and victories are within our reach.”  Tailoring the Goals’ implementation to local contexts is vital for success, she emphasized, encouraging local governments and communities to take ownership.  She stressed the need to explore innovative financing mechanisms, foster public-private partnerships and engage a diverse range of stakeholders, including young people. “Young minds are often at the forefront of innovation, unencumbered by conventional thinking and ready to explore new frontiers,” she pointed out.

ANTÓNIO GUTERRES, Secretary-General of the United Nations, reported that, halfway to 2030, a third of the Goals have stalled or gone into reverse, emissions continue to rise, hunger is back to 2005 levels and gender equality is 300 years away. Almost 600 million people will still be mired in extreme poverty by 2030.  The COVID-19 pandemic, the climate crisis, widespread conflict and the Russian Federation’s invasion of Ukraine have hobbled fragile and limited progress.  “But, let’s be clear:  our world was off track well before these upheavals,” he pointed out.  The annual Sustainable Development Goals funding gap has risen from $2.5 trillion before the pandemic to an estimated $4.2 trillion.  Promises made on overseas development assistance and climate finance have not been kept.  Developing countries are facing sky-high borrowing costs and 52 nations are in default or close to it — with no effective system of debt relief in sight.

“The world is crying out for high-level political action — action to make the Sustainable Development Goals a reality — for everyone, everywhere,” he stated, urging every Government to come to the SDG Summit with clear plans and pledges to strengthen action in their countries.  He also urged young people and civil society at the forum this week to continue to fight for the Goals.  “Above all, we need the SDG Summit to send a clear message from world leaders through a strong political declaration,” one that lays a path for faster progress and paves the way for much-needed reforms of the international financial architecture, he underscored.  Also urging the Group of 20 countries to set a timeframe this year to establish a new debt-resolution mechanism, he emphasized that developed countries must deliver the promised $100 billion this year, replenish the Green Climate Fund and double funding for adaptation.  “Together, we can deliver.  Let’s make this year count.  Let’s keep the promise,” he said.

CSABA KŐRÖSI (Hungary), President of the General Assembly, said that the timely implementation of the 2030 Agenda for Sustainable Development is being hindered because the international community inherited accumulated risks, as well as old-fashioned policies, market regulations and institutions.  Accelerating the sustainability transformation requires measures, among others, to create national transformation strategies, align regulations with announced goals, learn how to calculate all important externalities of actions or inactions, and identify and prioritize game-changers in the implementation of the Goals.  Financing the transition needed for achieving the Goals remains a critical challenge, with the financing gap now exceeding $4 trillion per year, up from $2.5 trillion.  It is a huge amount of money, “but let me invite our financing experts to calculate and quantify the benefits of sustainability transformation”, he said, stressing that the knowledge exists to steer humanity out of the crises.

Turning to the upcoming SDG Summit, he expressed hope that it will result in the supercharging and accelerating of the implementation of the Goals.  “The Summit will be the moment to make new commitments to set in motion the game-changers we will need to agree on in only a matter of weeks,” he said.  Drawing attention to some game-changers, such as the integration of water and climate policies and the establishment of a Global Water Information System, endorsed at the United Nations Water Conference in March, he said the SDG Summit itself and its political declaration should breathe a new life into the sustainability transformation.  But, this process will not end in September, he said, adding that it will likely not end in 2030 either. “The 2030 Agenda is — and should remain — our map, our nautical chart,” he emphasized.

HOESUNG LEE, Chair of the Intergovernmental Panel on Climate Change, highlighting the Panel’s latest reports, noted that climate hazards and non-climate threats are occurring now with the warming of 1.1°C and will get worse with additional warming.  Climate change has exposed about half the world population to acute food insecurity and reduced water security, with the largest adverse impacts in Africa, Asia, Central and South America, least developed countries, small island States and the Arctic.  Climate change has slowed the growth in agricultural productivity globally over the past 50 years.  Heat waves, heavy precipitation, droughts and tropical cyclones have increased their frequency and intensity in all regions.  Many recent extreme weather events would not have occurred in the absence of global warming, he observed, adding that loss of human life from floods, droughts and storms in highly vulnerable regions was 15 times higher compared to regions with very low vulnerability.

Further damage to ecosystems will lead to losses in their intrinsic value and disruption in the provision of services to benefit life on earth, he continued.  Additional warming will increase the risks of species extinction and irreversible loss of biodiversity in ecosystems.  Further warming will increase the likelihood of irreversible changes in the climate system: at warming levels between 2°C and 3°C, the Greenland and West Antarctic ice sheets will be lost almost completely over multiple millennia, causing several meters of sea-level rise. Accordingly, he said that deep, rapid and sustained cuts to global greenhouse gas emissions are the best option for sustainable development.   Developed countries, which have financial capital and technology to tackle climate change, promised to provide financial and technological support for developing countries’ climate action.  “Now is the time to deliver that promise,” he declared.

Moderating the fireside chat featuring Global Sustainable Development Report scientists was Salvatore Aricò, Chief Executive Officer of the International Science Council.  The featured speakers were:  Imme Scholz, Co-Chair of the Independent Group of Scientists writing the Global Sustainable Development Report and Co-President of the Heinrich Böll Foundation; and Jaime Miranda, Co-Chair of the Independent Group of Scientists writing the Global Sustainable Development Report and  Head of the School of Public Health at the University of Sydney, Australia, and Professor at the Department of Medicine of the Peruvian University Cayetano Heredia in Lima.  The discussant was Marilynn Holguin Clover, youth delegate of the Millennials Movement.

Ms. SCHOLZ, noting that innovation is crucial for change, said that renewable energies cannot exist in parallel to fossil fuel-based energy systems; they have to remove them.  The task now is to accelerate implementation in the right direction. To this end, policymakers need to look for the support of science, and science needs to engage in research that helps to design transformative public policies to facilitate collective action and avoid lock-ins.  Noting that broad coalitions of societal support are needed to push and sustain change, she said cooperation within transformation alliances by the private sector, labour organiaztions, civil society and local governments are crucial. Additionally, science must generate socially robust knowledge by using cooperative methods together with economic actors and citizens.  This includes working across disciplines and including local and Indigenous knowledge as solutions need to be context specific.

Mr. MIRANDA said that, as a Peruvian, he has seen the world shaken and brought to its knees by the pandemic.  Collective suffering fuels the resilience that drives humanity forward, he pointed out, underscoring that the pandemic taught the lesson of solidarity and hope and showed “that we also know how to do things together”.  Facing these global challenges, science unites the world, he said, noting that the seven years left until 2030 is “not seven years to despair”, but can strategically shape the transformations the international community wants to see.  The interrelation between science and political decisions is key to identifying the obstacles that require attention.  Many of these decisions must be taken by different actors, not just by Governments, he stressed, underlining the need for data and an environment conducive to change for the implementation of national plans that will accelerate transformative action.

Responding to the moderator’s question about priorities to consider in capacity-building of State and non-State stakeholders, Ms. SCHOLZ pointed out that typically, Governments are organized in departments, providing specialization but facing obstacles for coordination and linkages.  As such, specific capacities are needed, first in public administration and policy makers at all levels for strategizing and cooperation across policy fields and all groups of society and devising policy action that is fit for each transformation phase and specific country context.  Another capacity needed by all actors is the ability to create trust and achieve transparency, she added.

Responding to the question about how countries can minimize impediments and maximize enabling conditions, Mr. MIRANDA referred to the report and said the S-curve helps shed light on how transformations move from emergency through stabilization, passing through a phase of acceleration. This knowledge should be an incentive to information and support strategic decisions with a view to conceptualizing desirable transformations, which would then be prioritized, protected and promoted, he said, stressing:  “This is not just a job for Governments.  It is a job for everyone.”

Ms. CLOVER said the Millennials Movement was part of the Latin American and Caribbean regional consultations held in Lima in November 2022 where young people had the opportunity to share the challenges they face as well as their perspectives on how implementation of the 2030 Agenda translates to their context.  The report is an action plan on how to change for the better and has the potential to guide youth advocacy and action in the region to drive change the present that impacts their future, she underscored, calling on Member States and diverse stakeholders to amplify the power of youth action.  The Millennials Movement is committed to mobilize youth in the region not to advance but to accelerate transformation, she added

Responding to a final question about how the report and its interdisciplinary process assists Member States’ deliberations, Ms. SCHOLZ said she has made efforts to send the report’s message in the German and European debate and has echoed the Secretary-General’s call for a clear and strong political declaration that enables words to be translated into action, based on socially robust and local knowledge to support the design of context-specific and localized solutions, which together shape a more sustainable world.

Mr. MIRANDA said the interrelation between science, academia and policy decisions is essential.  “Science unites us and can help us find the path that brings us together, so we can work together for the common good,” he said, calling on all to work and take informed decisions together.

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Over 50 countries close to debt default UN

Summary by Russia Today [🇷🇺-Affiliated]
Talks with G20 on relief for borrowers are reportedly ?not advancing at all? With talks of G20 finance ministers in India stalling on th
Read with caution - this story is only being covered by one news source that has a ‘low factuality’ rating, which means the outlet has a history of poor reporting practices. Learn more about factuality ratings here.
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DEBT

Countries with the Highest Default Risk in 2022

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Countries with the Highest Default Risk in 2022

Countries with the Highest Default Risk in 2022

Countries with the Highest Default Risk in 2022

In May 2022, the South Asian nation of Sri Lanka defaulted on its debt for the first time. The country’s government was given a 30-day grace period to cover $78 million in unpaid interest, but ultimately failed to pay.
Not only does this impact Sri Lanka’s economic future, but it also raises an important question: which other countries are at risk of default?
To find out, we’ve used data from Bloomberg to rank the countries with the highest default risk.

The Sovereign Debt Vulnerability Ranking

Bloomberg’s Sovereign Debt Vulnerability Ranking is a composite measure of a country’s default risk. It’s based on four underlying metrics:

  • Government bond yields (the weighted-average yield of the country’s dollar bonds)
  • 5-year credit default swap (CDS) spread
  • Interest expense as a percentage of GDP
  • Government debt as a percentage of GDP

To better understand this ranking, let’s focus on Ukraine and El Salvador as examples.

CountryRankGovernment Bond
Yield (%)
5Y CDS SpreadInterest Expense
(% of GDP)
Government Debt
(% of GDP)
🇸🇻 El Salvador131.8%3,376 bps
(33.76%)
4.9%82.6%
🇺🇦 Ukraine860.4%10,856 bps
(100.85%)
2.9%49%

1 basis point (bps) = 0.01%

Why are Ukraine’s Bond Yields so High?

Ukraine has high default risk due to its ongoing conflict with Russia. To understand why, consider a scenario where Russia was to assume control of the country. If this happened, it’s possible that Ukraine’s existing debt obligations will never be repaid.
That scenario has prompted a sell-off of Ukrainian government bonds, pushing their value down to nearly 30 cents on the dollar. This means that a bond with face value of $100 could be purchased for $30.
Because yields move in the opposite direction of price, the average yield on these bonds has climbed to a very high 60.4%. As a point of comparison, the yield on a U.S. 10-year government bond is currently 2.9%.

What is a CDS Spread?

Credit default swaps (CDS) are a type of derivative (financial contract) that provides a lender with insurance in the event of a default. The seller of the CDS represents a third party between the lender (investors) and borrower (in this case, governments).
In exchange for receiving coverage, the buyer of a CDS pays a fee known as the spread, which is expressed in basis points (bps). If a CDS has a spread of 300 bps (3%), this means that to insure $100 in debt, the investor must pay $3 per year.
Applying this to Ukraine’s 5-year CDS spread of 10,856 bps (108.56%), an investor would need to pay $108.56 each year to insure $100 in debt. This suggests that the market has very little faith in Ukraine’s ability to avoid default.

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