Developing Countries' Debt has Doubled in the Last 10 Years

Developing countries are increasingly attracting debt capital on the domestic market. The sovereign debt of developing countries rose more than double from USD 5.2 trillion in 2007 to USD 11.7 trillion by the end of 2016, according to the Bank of International Settlements (BIS), reported the Financial Times, quoted by BGNES.

But their financial position has become more sustainable due to the change in the debt structure. These countries started to issue more bonds in national currency and with a longer repayment term. "These trends need to strengthen the financial sustainability of countries, curbing the risks of debt refinancing and exchange rate fluctuations," said Christina Bektjakova of BIS.

First of all, the debt of developing countries, albeit doubled in monetary terms, as a share of GDP has grown only from 41% to 51%, according to BIS. This is significantly less than in developed countries. Moreover, about USD 8 trillion of total debt is attributable to Brazil, China, where debt is only 46.4% of GDP, and India, where the debt-to-GDP ratio has declined compared to 2007.

Secondly, as the debt analysis of the 23 largest emerging economies (excluding China) shows, only 14% of their debt, equivalent to USD 4.4 trillion at the end of 2016, was nominated in foreign currency. By comparison, at the end of 2001, the share was 32%. This downscaling reduces the risk of a debt crisis triggered by the weakening of the national currency against the dollar or the euro.

The third factor of risk reduction - the "sharp increase" in the average repayment term of developing countries' debt. It reduces the risk that the state will not be able to refinance the debt in the event of a temporary crisis. For the past 10 years, the debt repayment period has grown from 6.5 to 7.7 years, almost equivalent to 8 years for developed countries.

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