Many countries of the world live in a permanent crisis. So, the Russian government regularly asks citizens to tighten their belts, and some are already gloomily joking that these belts should be tightened around the neck. However, if you look at the IMF estimates regarding the acceptable level of debt of countries by the end of 2018, it turns out that in Russia everything is not so bad.
After all, there are other countries that are already in a state of debt crisis, or it is about to come. Introducing you top 10 countries closest to default in 2019 according to the Committee on the Elimination of Unlawful Debt (CADTM) and other resources.
10. Greece
This country is not the first year drowning in debt. The debt crisis began in Greece back in 2010. Then she was saved from bankruptcy by financial assistance from the EU. However, in 2015, the country defaulted without 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 an independent life after a period of austerity, however, its debt exceeds 300 billion euros, and in order to keep from default, the homeland of democracy will have to keep itself in the grip until 2060. In the first five years, its annual revenues should exceed budget 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 support 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 on the Abolition of Illegal Debt is still in talks with the IMF about additional cash injections, but does not want to comply with the terms of the IMF.
The main creditors of Pakistan are China and various development banks. However, when the country can return the money to them - it is not clear.
8. Sri Lanka
The island nation is struggling with a crisis caused by Chinese infrastructure loans. These loans increased the already large amount of debt from private sources. And if we take into account the massive outflow of capital from the country, it is not surprising that it is among the top ten states that are close to default.
7. Venezuela
This financially insolvent country has already defaulted on a number of bonds and is facing litigation by vulture funds. She is unlikely to be able to restructure old debts, remaining under US sanctions that prevent foreign lenders from taking new bonds.
6. The Gambia
Gambia, born of British and French colonial rivalries in the 19th century, suffered from poverty for many years, partly due to the rule of Yaya Jamme, during which thousands of dissent were imprisoned and dozens of enterprises were expropriated.
At the end of last year, the Gambian government debt reached 130 percent of GDP, after which the IMF warned the country's leadership against any new borrowing.
In an attempt to restructure volatile and illegal debts, the Gambia has hired international consultants to help the country out of the debt crisis.
5. Russia
Will the default in the Russian Federation in 2019 be one of the burning topics for experts of all stripes. Here are some factors that may contribute to default:
- falling oil prices;
- prolonged sanctions by the West;
- rising inflation;
- a big difference between current and planned revenues to the country's budget.
However, former 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 disagree with him, who have analyzed the dynamics of indices in the global stock market. 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 more optimistic, and time will tell who is right - a Russian politician or American experts.
4. Uganda
An interesting case that proves that debts can be caused by humanitarian crises. Auditor General experts believe that the Ugandan government will have to use more than half of government revenue in the coming years to pay them off. At the same time, the IMF estimates the “risk of debt problems” as low.
3. Angola
According to the Fitch rating agency, 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 of up to $ 3.7 billion for this country. Angola is one example of oil-exporting countries affected by the fall in black gold prices.
2. Italy
It would seem that it could threaten beautiful Italy, one of the favorite “daughters” of the powerful European Union? Meanwhile, this country has accumulated a gigantic national debt of 2.3 trillion euros. It is 130% of GDP. Only Greece is worse off (180% of GDP).
And the new Italian government, led by Giuseppe Conte, is called "populist." It is no secret that populists tend to turn a blind eye to problems or promise voters a quick and easy solution. And the Italian government does not yet have a clear plan for debt repayment. Even despite the fact that the rating of Italy according to the Moody’s agency is close to the level of "garbage".
1. Ukraine
So far, the main news in the country is the upcoming elections and changes in the 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 requests assistance from the IMF and is still the largest recipient of macro-financial assistance from the EU.
In the period from 2019 to 2020, the country will have to pay 17 billion in state debt. This amount is almost equal to the Ukrainian gold and foreign exchange reserve. Authorities have traditionally hoped for IMF assistance, but experts have divided opinions. Many of them express the opinion that default in Ukraine is inevitable, because there is simply nothing to give huge debts. That is why the homeland of embroidered shirt tops the list of countries that are in danger of default in 2019.
What happens when a country declares a default
After default, the government has several options:
- You can simply restructure the debt, or extend its repayment period, or devalue the national currency to make it more accessible.
- Then comes a period of austerity, followed by a period of renewal (and sometimes rapid) growth. For example, if a country depreciates its currency in order to pay off its external debt, then the lower cost of the currency entails a reduction in the cost of export products, which ultimately helps to “restart” the economy and facilitate the repayment of debt.
- The exception was Iceland, which in 2008 allowed its largest banks to go bankrupt without saving them with foreign help. Because of this, about 50 thousand residents lost their savings, and the international economy was destabilized, however, Iceland quickly recovered from this crisis, and by 2012 its GDP growth was 3%. Many economists point to Iceland as a model for the future.
