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1 1 (July 16, 2021)

handle is hein.crs/goveeap0001 and id is 1 raw text is: Sovereign Debt and the COVID-19 Pandemic The Coronavirus Disease2019 (COVID-19) pandemic and the ensuing downturn in economic growth has had significant economic and fmancial consequence forlow- income countries. The World Bank estimates that the pandemic led to 97 million more people being in poverty in 2020. Several countries have already defaulted on their sovereign debt, and many others are at high levels of debt distress, potentially impeding their ability to support recovery. The United States is participating in two G20 creditor country-led debtrelief initiatives. The Biden Administration is requesting $52 million in FY2022 funds from Congress to support these efforts. Members of Congresshave also introduced sovereign debt-related legislation aimed at improving the transparency of the scale and scope of creditor countries' sovereignlending (e.g., S. 1169). China is nowthelargest creditor to developing countries, and some Members have raised concerns about the economic and security impacts of China's economic diplomacy. Some Members have also expressed concerns about thegrowing complexity of sovereign debt financing and its associated risks. Debt Vulnerabilities The debt stockof 120 low- and middle-income countries rose to $8.4 trillion in 2020 (Figure 1). According to the World Bank, at the end of 2020, 54% of countries of International Development Association (IDA) were in or at a high riskof debt distress. In emerging market countries, the past year has seen a surge in sovereign defaults. Since the end of 2019, six countries (Argentina, Belize, Ecuador, Lebanon, Suriname, andZambia)havedefaultedon sovereign debt obligations. Public debt in emerging markets (excluding China) is expected to reach 61% of GDP in 2021. Figure I. Government Debt Ratios and Gross Financing Needs (Percentage of GDP) Gross fi nann needs, GDP -*- det D 20 80 10 4; 5 = 00 N N N N N N rN r4 N N N N N -l 2021 is a projection. Source: International Monetary Fund;figure created by CRS. The landscape of sovereign borrowing has changed over the past few decades. Following a sharp decline after the 2005 G8-led Multilateral Debt Relief Initiative, sovereign debt began accumulating during the 2007-2009 glob al fmancial crisis and has continuedto rise through the COVID-19 pandemic. According to World Bank figures, totalexternal government debt of low- and middle-income countries increased from$1.7 trillion in 2011 to $3.1 trillion in 2019. While the earlier waves of sovereign debt accumulation consisted primarily ofbankloans and bilateralborrowing from advanced economies and the multilateral development banks, recent increases in aggregate sovereign debt are largely attributable to China's emergence as a key developing country creditor and the rising use of private sectorbonds to finance developing country public debt. Both ofthese trendshaveraisednewchallenges in resolving sovereign defaults. China's Lending to Developing Countries Since the early 2000s, China has become the largest creditor to low-income countries, surpassing a core group of traditional donor governments (organized informally as the Paris Club), the International Monetary Fund (IMF), and the World Bank (Figure 2). Unlike the IMF, the World Bank, or the 22 countries that compose the Paris Club, China rarely discloses the amounts or terms ofits bilateral debt agreements. According to one 2019 National Bureau of Economic Research study, half of China's official lending to developing countries is not reported in World Bank/IMF debt statistics. China is not a member of the Paris Club and, untilrecently, did not participate in multilateral debt relief initiatives. Figure 2. China's Emergence as a Leading Creditor 1991 2005 2019 Japan 1£ China Russia 2Japan U.S. , ermany Germa-ny l 4 France France 5 ia 6 . Arabia > 7 Kuwait Kuwait 11 a UAE S. Arabia 12 India China . U.S. UAE 19 Rank among all classified Indiabilateral lenders, based on total India guaranteed debt to developing countries. Source: Figure created by CRS based on WB I DS Statistics 2021 data; retrieved from httpsi/t.co/Ppts0t IORG?amp=1. .congress.gov July 16, 2021

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