Many countries of the world live in permanent crisis. For example, the Russian government regularly asks citizens to tighten their belts, and some already gloomily joke that these belts need to be tightened around the neck. However, if you look at the IMF's estimates of the sustainable level of countries' debt by the end of 2018, it turns out that things are not so bad in Russia.
After all, there are also other countries that are already in a state of debt crisis, or it may just come. Introducing you top 10 countries in the world closest to default in 2019 according to the Committee for the Elimination of Illegal Debt (CADTM) and other resources.
10. Greece
This country has been sinking in debt for years. The debt crisis began in Greece back in 2010. Then financial assistance from the EU saved her from bankruptcy. However, in 2015, the country defaulted by not transferring a huge tranche to the IMF, the amount of which amounted to 1.54 billion euros as part of debt repayment.
At present, Greece is returning to independent life after a period of austerity, but its debt exceeds 300 billion euros, and in order to resist default, the homeland of democracy will have to keep itself “tight-knit” until 2060. In the first five years, its annual revenues should exceed budgetary expenditures by 3.5% of GDP, and in subsequent decades - by 2.2%.
9. Pakistan
Until the end of June, the country will need about $ 12 billion to maintain the balance of payments. Pakistan has already received $ 6 billion from Saudi Arabia and almost the same from China and the United Arab Emirates combined. And the Pakistani Committee for the Cancellation of Illegal Debt is still negotiating with the IMF for additional cash injections, but does not want to comply with the IMF's conditions.
Pakistan's main lenders are China and various development banks. However, when the country will be able to return the money to them is unclear.
8. Sri Lanka
The island nation is grappling with the crisis caused by Chinese infrastructure loans. These loans have increased the already large volume of private debt. And if we also take into account the massive capital outflow from the country, it is not surprising that it is among the top ten states close to default.
7. Venezuela
This financially insolvent country has already defaulted on a number of bonds and is facing litigation by vulture funds. It is unlikely to be able to restructure old debt, while remaining under US sanctions that prevent foreign creditors from borrowing new bonds.
6. Gambia
Born by British and French colonial rivalry in the 19th century, the Gambia suffered long years of poverty, in part due to the rule of Yaya Jammeh, during which thousands of dissenting people were imprisoned and dozens of businesses expropriated.
At the end of last year, the Gambia's public debt reached 130 percent of GDP, after which the IMF warned the country's leadership against any new borrowing.
Currently trying to restructure volatile and illegal debt, The Gambia has hired international consultants to help the country emerge from its debt crisis.
5. Russia
Whether there will be a default in the Russian Federation in 2019 is one of the burning topics for experts of all stripes. Here are the factors that can contribute to a default:
- falling oil prices;
- long-term sanctions from the West;
- growing inflation;
- a big difference between current and planned revenues to the country's budget.
However, ex-finance minister Alexei Kudrin reassures the population, saying that no defaults are expected in the country in the next 20 years. And you can safely invest your money in Russian securities.
Analysts at Bank of America, who analyzed the dynamics of indices in the global stock market, disagree with him. They believe that Russia will face a repeat of 1998, when the ruble collapsed, banks did not issue deposits, and the financial and economic systems were paralyzed. Kudrin's forecasts sound somehow more optimistic, and time will tell who is right - a Russian politician or American experts.
4. Uganda
An interesting case that proves that debt can be caused by humanitarian crises. Auditor General experts believe that the Ugandan government will have to use more than half of government revenues to pay off them in the coming years. At the same time, the IMF estimates the "risk of debt problems" as low.
3. Angola
According to the ratings agency Fitch, public sector debt in Angola reached 81 percent of GDP by the end of 2018. The International Monetary Fund has already approved a three-year loan to the country for up to $ 3.7 billion. Angola is one example of oil-exporting countries hit by the fall in the price of black gold.
2. Italy
It would seem, what could threaten beautiful Italy, one of the beloved "daughters" of the powerful European Union? Meanwhile, this country has accumulated a gigantic national debt of 2.3 trillion euros. It accounts for 130% of GDP. The situation is worse only in Greece (180% of GDP).
And the new Italian government, headed by Giuseppe Conte, is called “populist”. It is no secret that populists tend to close their eyes to problems or promise voters a quick and easy solution. And the Italian government does not yet have a clear plan for paying off the debt. Even in spite of the fact that Italy's rating according to the Moody’s agency is close to the “junk” level.
1.Ukraine
While the main news in the country is the upcoming elections and changes in ranking of presidential candidates... However, these events do not affect the end of the conflict in the east of the country. In addition, Ukraine regularly asks for help from the IMF and remains the largest recipient of macro-financial assistance from the EU.
In the period from 2019 to 2020, the country will have to pay off the state debt of $ 17 billion. This amount is practically equal to the Ukrainian gold and foreign exchange reserve. The authorities have traditionally hoped for help from the IMF, but the opinions of experts were divided. Many of them are of the opinion that a default in Ukraine is inevitable, because there is simply nothing to pay off huge debts. That is why the homeland of embroidered shirts tops the rating of countries threatened by default in 2019.
What happens when a country defaults
After the default, the government has several options:
- You can simply restructure the debt, or extend its maturity, or devalue the national currency to make it more affordable.
- This is followed by a period of austerity, followed by a period of renewed (and sometimes rapid) growth. For example, if a country depreciates its currency in order to pay off external debt, then the lower value of the currency also entails a cheaper export product, which ultimately helps to “restart” the economy and ease debt repayment.
- The exception was Iceland, which allowed its largest banks to fail in 2008 without saving them with foreign aid. Because of this, about 50 thousand residents lost their savings and the international economy was destabilized, but Iceland quickly recovered from this crisis, and by 2012 its GDP grew by 3%. Many economists point to Iceland as a model for the future.