Developing world faces wave of defaults – Bloomberg – RT Business News
Emerging countries, including El Salvador, Ghana, Egypt, Tunisia and Pakistan, will face a historic cascade of defaults as a quarter-trillion-dollar pile of troubled debt continues to pile up. put downward pressure on economies, reports Bloomberg.
“With low-income countries, debt risks and debt crises are not hypothetical,” World Bank chief economist Carmen Reinhart told the agency on Saturday. « We’re almost there already. »
Over the past six months, the number of emerging markets whose sovereign debt is trading at very difficult levels is said to have doubled, meaning that the yields indicate that investors think default is a real possibility.
Another major source of concern would be related to a possible « domino effect » this usually happens when frightened investors start withdrawing money from countries experiencing economic problems similar to those that failed countries had previously experienced.
In June, traders reportedly withdrew $4 billion worth of emerging market bonds and stocks, marking a fourth consecutive month of outflows.
Likely failures may be followed by political instability. Earlier this year, Sri Lanka was the first country to stop paying its foreign bondholders, weighed down by high food and fuel costs that have fueled protests and political chaos.
« Populations suffering from high food prices and supply shortages can be a powder keg for political instability », Barclays said, quoted by Bloomberg.
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