Why There’s a Looming Debt Crisis in Emerging Markets

Solvency concerns in the developing world are nothing new. But as governments stare down the humanitarian and economic shocks of the coronavirus pandemic, some poor countries are at greater risk of defaulting on their debts. More than 100 nations have asked the International Monetary Fund for help, and there has been a coordinated effort to ease the pressure. Longer-term relief would need the backing of multilateral organizations, bilateral lenders and private creditors.

Emerging-market countries owed more than $8.4 trillion in foreign-currency debt, or about 30% of the developing world’s gross domestic product, as of the end of the first quarter. At least $620 billion may need to be refinanced this year, as many of these nations see the worst effects of the pandemic. The fear is that weaker local currencies, lower government revenues, dwindling foreign reserves and a worldwide recession will make it more difficult to keep up on foreign debt payments.