A study conducted by business and analytics firm S&P Global states that countries will default more frequently on their foreign currency debt.
A recent Reuters report discussed the statistics provided as part of the S&P Global Rankings in detail. They show that several nations with stable financial circumstances may face the risk of defaulting on foreign debt in the coming years.
“Sovereign defaults have significant implications for economic growth, inflation, exchange rates, and the solvency of a sovereign’s financial sector,” S&P Global reportedly stated.
Nations risk defaulting on foreign debt says S&P Global
Many factors have contributed to a tumultuous past decade, including the COVID-19 pandemic and Russia’s invasion of Ukraine. More recently, oil prices and other resources have been stretched due to growing tensions in the Middle East.
As Due reported, the World Bank issued a warning that oil could hit $100 a barrel due to rising conflicts.
World Bank Group’s Chief Economist and Senior Vice President, Indermit Gill, said, “Global inflation remains undefeated. A key force for disinflation—falling commodity prices—has essentially hit a wall. That means interest rates could remain higher than currently expected this year and next. The world is at a vulnerable moment: a major energy shock could undermine much of the progress in reducing inflation over the past two years.”
These global crises increased the price of resources worldwide, including fuel, food, and energy costs, which caused some nations to slide dangerously close to having empty coffers.
Some nations depend heavily on borrowing to keep their markets afloat but struggle to repay the interest on the grace granted by more stable economic nations.
“These factors quickly create liquidity challenges as access to financing dries up and capital flight accelerates,” the report said. “In many cases, this constitutes the tipping point where liquidity and solvency constraints become problematic for a government.”
It remains to be seen which countries will be the most at risk of default, but the S&P Global study earmarks a turbulent time for those nations borrowing more than generating.
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