JPMorgan warns 10% of junk-rated emerging markets are facing debt crises

LONDON (Reuters) – Rising borrowing costs and the global fallout from the Russia-Ukraine war could cause up to 10% of riskier, “junk”-classified emerging market countries to experience debt crises this year, analysts at US investment bank JPMorgan warned.

Greater balance of payments pressures and wider budget deficits are now creating greater problems for heavily indebted countries that import most of their energy and food.

“Nearly half of the country sample is classified as having a high repayment risk according to our assessment. Of these eight, reserves will increase towards the end of 2023, indicating high default risk. These are Sri Lanka, Maldives, Bahamas, Belize Senegal, Rwanda, Grenada and Ethiopia,” the note led by strategist Trang Nguyen said on Tuesday.

A jump in global interest rates in response to soaring inflation also means many are facing the reality of rising borrowing costs, a departure of more than a decade from so-called “easy money”.

“Taking into account the risks of a potential default in Russia and restructuring in Ukraine… the default rate of emerging market government bonds could reach 10% this year if Sri Lanka and Ethiopia are also considered as part of the Common Framework process the note added.

(Reporting by Marc Jones, editing by Jorgelina do Rosario)

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