US interest rates add to ‘silent debt crisis’ in developing countries - Financial Times

US interest rates add to ‘silent debt crisis’ in developing countries - Financial Times
# 07 November 2023 08:19 (UTC +04:00)

Many smaller emerging markets are confronting a “silent debt crisis” as they struggle with the impact of high US interest rates on their already-fragile finances, the World Bank has warned, APA reports citing Financial Times.

After a sharp sell-off last year triggered by a rapid rise in global interest rates and a strong dollar, foreign currency emerging market debt has struggled to recover as investors bet that borrowing costs will have to stay higher for longer.

That has left the proportion of emerging and developing countries whose borrowing costs are more than 10 percentage points above those of the US at 23 per cent. That compares with less than 5 per cent in 2019, the World Bank calculates, in an indication of the stress those economies are now under.

As a result, debt interest payments as a share of government revenues were at their highest level since at least 2010, according to the bank.

The monetary policy tightening cycle had been a “nightmare” for lower-income countries with high levels of debt, said Ayhan Kose, deputy chief economist of the World Bank Group in an interview. “Given the well-defined challenges these economies are facing with respect to rolling over debt obligations . . . we are saying there is a silent debt crisis that has been taking place.”

The pain from higher borrowing costs is expected to be particularly acute for lower-income countries, given that many of them ran up large debt piles during the Covid-19 pandemic.

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