Why Poor Nations Now Face a Pandemic Debt Crunch

Some of the world’s poorest countries are in deep financial trouble. Indebted governments from Latin America to Africa spent money they didn’t have to shore up rickety health systems against the coronavirus pandemic and provide a safety net for citizens. Then Russia’s war in Ukraine sent grain and fuel prices surging and central banks began raising interest rates to quell inflation. Soaring living costs have triggered bouts of social and political instability and the odds are rising of a wave of bond defaults.

Dollar-denominated bonds of 21 countries tracked by Bloomberg Economics, the most on record, were trading at yields at least 10 percentage points more than US Treasuries as of mid-July -- a sign of distress. El Salvador, Ghana, Egypt, Tunisia and Pakistan were among those seen as the most vulnerable. Others on the list include Argentina, Ukraine, Kenya and Ecuador. Those under the most stress tend to be smaller countries with a shorter track record in international capital markets. Sri Lanka, which was wracked by months of protests over soaring inflation, became the first nation to default on its sovereign debt in 2022 when it stopped paying foreign bondholders in May. The following month, Russia reneged on its repayment commitments after getting caught up in a web of sanctions imposed in response to its invasion of Ukraine, and its close ally Belarus followed suit in July.