With the declaration of Venezuela’s default, investors begin to look at other countries that are also at risk
After Venezuela was declared in default by credit-rating companies, emerging-market money managers are trying to identify countries that may face financial troubles or evade payments, as well. Not one of them is in a situation similar to what Nicolas Maduro’s country is dealing with.
It’s worth noting that of the riskiest nations, four — Lebanon, Egypt, Pakistan, and Bahrain — haven’t recorded a default since their independence. The risk premium on emerging-market sovereign bonds has fallen seven basis points in the past week to 295 basis points over the United State Treasuries, according to a JPMorgan Chase & Co. index.
These are the seven riskiest nations, when it comes to financial matters, according to investors and trading swaps:
One of the world’s most indebt countries, Lebanon may hit a debt-to-gross domestic product ratio of 152 percent this year, according to the International Monetary Fund. That’s coming at a time when political tension is rising. Prime Minister resignation, announced from Riyadh, Saudi Arabia, triggered about $800 million dollars’ worth of withdrawals from the country as investors speculated that the nation would be in the crosshairs of a regional feud between the Saudis and Iranians.
Ecuador probably has the highest default risk after Venezuela, according to Robert Koenigsberger, the chief investment officer of Gramercy Funds Management. The country will be vulnerable “when the liquidity environment changes and they can no longer go to the market to get $2.5 billion dollars to plug the hole”, the expert stated.
While the Eastern European nation’s credit-default swaps have declined since 2015, persistent economic struggles are giving traders reason to be cautious. GDP expansion has slowed down for three consecutive quarters and the World Bank warns that the economy is at risk of falling into a low-growth trap.
Egypt’s credit-default swaps are hovering at their highest point since September. The cost for protection surged in June as regional tensions heated up amid a push by the Saudis to isolate Qatar. While Egypt has been able to boost foreign-currency reserves and is on course to repay $14 billion dollars in principal, its foreign debt has surged to $79 billion from $55.8 billion dollars.
Pakistan’s credit-default swaps surged in late October and lingered near their highest level since June of this year. South Asia’s second-largest economy faces challenges as it struggles with decreasing foreign reserves, rising debt payments, and a ballooning current account deficit.
The nation is seeking to replenish international reserves and avert a currency devaluation as oil prices batter the six Gulf Cooperation Council oil producers.
Despite high yields, investors are still reluctant to buy Turkish bonds. The nation has been caught up in a blur of political crises, driving spreads on credit-default swaps to their highest level since May.
Of these seven countries, only Ecuador has a very high risk. However, for investors the other six nations must remain under surveillance.
Latin American Post | Carlos Eduardo Gómez Avella
Copy edited by Susana Cicchetto