Emerging market debt has climbed to record high of $17.9 trillion

Robust hard-currency bond issuance has driven up external debt ratios, exposing emerging market economies to risk if financial conditions abroad start to tighten, according to Bloomberg Intelligence (BI).

The outstanding stock of emerging market government debt has surged to a record $17.9 trillion, leaving low-income countries less resilient to global growth and inflation dynamics, according to the analysis.

Nearshoring boosts investment in emerging markets

Damian Sassower, chief EM credit strategist at BI, commented: “Hard-currency debt from the 19 major emerging market issuers in our analysis surged 91% since 2019 to a record $1.74 trillion, outpacing the jump in local-currency bond issuance. Outstanding emerging market local-currency bond obligations are at an all-time high of $16.2 trillion, having expanded 64% in the post-pandemic period.”

According to the analysts, the jump in hard-currency debt issuance has caused emerging market external debt ratios to rise, leaving less-developed economies more tightly linked to financial conditions abroad.

A new Brics currency

Saudi Arabia, Chile and Peru are the only economies where external obligations exceed 50% of total debt, leaving them at greater risk of contagion than emerging market peers. External debt ratios are above the five-year average in nine of the 19 emerging market economies in BI’s analysis.
Turkey’s external debt ratio remains elevated, while external debt ratios in Colombia, Mexico and the Czech Republic have improved, according to the research.

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