Sovereign debt defaults soar as governments feel pinch of higher rates, data show
The amount of sovereign debt in default rose by 35 per cent in 2022 as interest rates climbed, reaching US$558 billion and representing 0.6 per cent of public debt worldwide, according to data gathered by the Bank of Canada and Bank of England.
Tighter financing conditions hit hardest in emerging markets and heavily indebted poor countries, as defined by the central banks.
The amount of debt in default grew even though the number of sovereigns in default shrunk to 84 from 99.
“Debt in default jumped 52 per cent for HIPCs (heavily-indebted poor countries) and 49 per cent for emerging/frontier market sovereigns, but by just two per cent for advanced-economy sovereigns,” the Bank of Canada said in a July 31 report.
The latest figures were released in an environment where government debt remains elevated as interest rates rise globally, the report’s authors noted.
“The IMF (International Monetary Fund) estimates that the global stock of general government debt, measured in U.S. dollars, reached a record US$92.3 trillion in 2022, or 92 per cent of global gross domestic product,” the report said, adding that the IMF, which monitors the international monetary system and lends to member countries, projects the global public debt burden will continue to grow over the medium-term.
“Against a backdrop of historically high inflation and rising nominal and real interest rates, debt service payments remain challenging for many emerging-market and developing economies,” the report said.
In 2022, the World Bank estimated that the poorest countries were already spending more than one-tenth of their export revenues to service their long-term external public debt.
The Bank of Canada database dates back to 1960 and tracks government
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