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Sovereign defaults jump to record high amid rate hikes, Russia's war on Ukraine, and Covid, Fitch says

Armored vehicle is seen as Russia-Ukraine war continues in Chasiv Yar, Bakhmut, Donetsk Oblast, Ukraine on March 16, 2023.
Armored vehicle is seen as Russia-Ukraine war continues in Chasiv Yar, Bakhmut, Donetsk Oblast, Ukraine on March 16.Anadolu Agency/Getty Images
  • Sovereign defaults are at a record high, with 14 default events since 2020, Fitch said.

  • That's compared to 19 such events between 2000 and 2019, according to the ratings agency.

  • Default events are also taking 107 days on average to resolve, up from 35 days in 2000, Fitch added.

Sovereign defaults have jumped exponentially in the last three years, according to a Fitch Ratings report published Wednesday.

Since 2020, 14 such events occurred across nine countries, compared to the prior two-decade span between 2000 and 2019 that saw 19 defaults across 13 different countries.

The surge in defaults comes as sovereign borrowing ramped up, with the median general government debt-to-GDP ratio climbing to 48% pre-Covid from 31% in 2008, helped by easier access to the eurobond market and financing from China.

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"Against this backdrop, frontier markets with limited buffers were poorly placed to cope with the severe shocks from the pandemic and the impact of Russia's invasion of Ukraine on food and energy prices, global inflation and the subsequent abrupt tightening in monetary policy," Fitch said.

Currently, Belarus, Lebanon, Ghana, Sri Lanka and Zambia are in default. Other countries that underwent such events since 2020 include Argentina, Ecuador and Suriname, as well as Ukraine.

Meanwhile, Russia faced its own default last year, after Western sanctions limited its ability to pay back investors.

Default events are also taking longer to resolve, particularly due to a lack of coordination between Chinese stakeholders, in addition to China's demand for multilateral debt within restructuring efforts.

While it took around 35 days to resolve a delinquency event in 2000, the average duration now takes around 107 days since 2020. Slower restructurings lead to higher financing costs, Fitch added.

Read the original article on Business Insider