The world’s poorest countries buckle under $3.5trn in debt

At Manhattan’s luxe Pierre hotel on a late September morning, Adebayo Olawale Edun, the finance minister of Nigeria, tried to soothe the jitters of Wall Street bankers. Over croissants and fresh-squeezed orange juice, he pledged that his country would cut spending and collect more in taxes to make the crushing debt payments owed to foreign investors. For Edun, a former investment banker and World Bank economist, it could hardly have been a more important audience: a presentation sponsored by Citigroup Inc., one of the world’s biggest underwriters of international bonds.

Tucked inside the materials distributed to the crowd, one item suggested the challenge of his task, according to people who were there but requested anonymity to discuss a private meeting. The document showed that Nigeria’s 2022 debt payments, the equivalent of $7.5 billion, surpassed its revenue by $900 million. In other words, it had been borrowing more just to keep paying what it already owed.

A debt crisis is brewing across the developing world as a decade of borrowing catches up with the world’s poorest countries. In 2024 these nations, known to rich-world investors as “frontier markets,” will have to repay about $200 billion in bonds and other loans. The bonds issued by Bolivia, Ethiopia, Tunisia and a dozen other countries are either already in default or are trading at levels that suggest investors are bracing for them to miss payments.

The situation is especially grave, because these nations have small domestic markets and must turn to global lenders for cash to spend for hospitals, roads, schools and other vital services. As the Federal Reserve vows to keep US interest rates higher for longer, a once-ebullient market for debt from those countries is drying up, cutting them off from more borrowing and adding to the many rate-related risks of 2024. “The punch bowl has been taken away,” says Sonja Gibbs, a managing director of the Institute of International Finance, which represents private and central banks, investment managers, insurers and others in the industry. “Global rates are considerably higher, and the incentive to invest in these markets is challenging when you can get 4% or 5% in US Treasuries.”

Source: moneyweb