The countries that have significant payment commitments for this year are the ones that face the greatest risks in the event that the escalation of tensions over the situation in Ukraine persists, warned the executive vice president for research and policy at the Institute of International Finance (IIF), Clay. Lowery.
Relying on information contained in the “Global Debt Report” launched by the institute from its offices in Washington, Lowery explained that emerging markets have debt maturities for this year for 7 trillion dollars; a figure that exceeds the 5.5 billion that they had to refinance in 2021.
Inside the document, they detail that emerging markets are the ones that are most exposed to the deterioration of global financial conditions and the increase in the cost of financing that may arise.
In an online conference, he observed that the world context was already volatile given the proximity of the start of the Fed’s rate hikes and became much more uncertain given the risk of an escalation in the geopolitical tension in Ukraine.
Lowery mentioned that, for now, the geopolitical tension caused by Russia’s invasion of Ukraine has led to very focused economic sanctions on that territory.
If the aggressions escalate, new bottlenecks in supply chains may arise, which will produce further increases in commodity prices, pressure on inflation and financial volatility, he predicted.
In addition, the director of sustainable finance at the IIF, Sonja Gibbs, stressed that the global context is very opportune to analyze the challenges facing debt markets.
It is not just inflation, nor the bull cycle of mature markets. The geopolitical conflicts currently led by Russia and Ukraine are also a key point.
He noted that bond yields remain on the rise, evidencing investor concern. However, he noted that it does not compare to the tension that they reflected when the pandemic appeared.
Elections also in focus
At the same conference, Anne Milne, Director of Corporate Credit Research for emerging markets at Bank of America Securities, highlighted that geopolitical problems led by the situation in Ukraine and Russia are “key factors” that can affect the financial performance of issuers in this year.
He pointed out that the internal elections of emerging countries, such as Brazil and Colombia, as well as the volatility of commodity prices, are elements that can tighten the financial conditions of the market.
We have to see if the conflict expands beyond the Ukraine region.
The IIF is the largest association of financial institutions. Its members include banks, brokerages, insurers, rating agencies and investment funds.
World debt totals 303 trillion dollars
World debt reached 303 trillion dollars in 2021, after increasing by 10 trillion during the past year, estimated the Institute of International Finance (IIF). The annual increase was lower than that seen in 2020, when simultaneous global fiscal stimulus triggered a global increase of $24 trillion.
The director of financial sustainability research at the IIF, Emry Tiftik, pointed out that a third of the increase in global debt was contributed by emerging markets.
The IIF projects that the debt of all emerging countries is close to 100 billion dollars, where 80% has been contributed by China.
At a press conference, the official stressed that the economic recovery and high inflation helped stabilize the debt as a percentage of the Gross Domestic Product. In this way, world debt stood at 351% of GDP, a percentage that is below the 360% of GDP it represented in the year of the pandemic.
The highest levels of debt are managed by governments, which at the end of 2021, managed liabilities that exceeded 100% of GDP.