Moody’s Talks – The Big Picture
Unraveling the recent sovereign default wave
Feb 12, 2024
Guests William Foster and David Rogovic discuss the recent wave of sovereign defaults, exploring the reasons behind the defaults and the challenges faced in debt restructuring. They analyze the causes and consequences of the defaults, regional variations in debt burdens, and the absence of a global framework for debt restructuring. The podcast also addresses coordination problems in sovereign debt and the impact of defaults on global investment, emphasizing the need for countries to establish robust frameworks and policies to instill investor confidence.
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Quick takeaways
- The increase in global interest rates post-COVID has worsened the sovereign default situation, impacting countries with vulnerabilities like over-reliance on commodities and weak institutions.
- Debt restructurings for sovereigns are complex, prolonged by the presence of diverse creditors and a lack of global common framework, with proposed solutions like the G20 common framework facing limited uptake and unresolved burden-sharing issues.
Deep dives
The increase in sovereign defaults
Since the pandemic, there has been an increase in sovereign defaults, with 20 countries defaulting on their debt since 2020. This is more than the number of defaults between 2010 and 2019. The increase in global interest rates post-COVID has made the situation even more challenging. Some defaults, like Russia, Ukraine, and Belarus, are linked to geopolitical risks, while others are a result of various challenges and a significant amount of debt denominated in foreign currency.
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