The crisis in Sri Lanka is a reminder of the vulnerability of many emerging countries, in particular to honor their debts. Goldman Sachs has estimated the amount of bond investment that has left emerging economies since the start of the year at $50 billion. Money which, in part, goes to the United States and Europe where interest rates have been revised upwards.
According to the Goldman Sachs study, this is the worst bleeding for emerging countries in 17 years. These economies are still largely resilient, many are net exporters of raw materials, in a context where their prices are soaring.
But now, the war in Ukraine and global inflation tend to encourage investors to turn to the security provided by US bonds.
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Several countries become at risk
In a country like India, foreign institutional investors have withdrawn $33 billion since last October, the start of the fiscal year. With strong reserves and local investors ready to pick up the slack, India’s system is nonetheless solid. But the rise in US rates necessarily depreciates the local currency and increases the import bill.
Other countries, which had to sell their foreign bonds during the health crisis to meet their expenses, now find themselves at risk from a market point of view. Their room for maneuver is almost zero in the face of exploding food prices. Ghana, Tunisia, Egypt, but also El Salvador, Pakistan and Argentina are regularly cited as states that will find it difficult to renew their maturing bonds.