About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

1 1 (March 6, 2023)

handle is hein.crs/govekue0001 and id is 1 raw text is: Congressional Research Servic informing the Iegislative debate since 1914 Updated March 6, 2023 Sovereign Debt Concerns in Developing Countries The Coronavirus Disease 2019 (COVID-19) pandemic and Russia's war on Ukraine has had significant economic and financial consequence for low-income countries. The World Bank estimates that the pandemic pushed 97 million more people into poverty in 2020. Several countries, including Argentina, Russia, and Zambia, have defaulted on their sovereign debt, and many others are at high levels of debt distress. Congress may consider the effects of high debt levels across developing countries for the economic development outlook in these countries, debt recovery efforts, and stability in the international financial system. The United States is participating in two G20 creditor country-led debt relief initiatives. The Biden Administration requested $52 million in FY2022 from Congress to support the G20 efforts. Congress appropriated these funds in P.L. 117-328, Consolidated Appropriations Act, 2023. Members of Congress have also introduced legislation aimed at improving the transparency of the scale and scope of creditor countries' sovereign lending (e.g., S. 1169, the Strategic Competition Act of 2021, in the 117th Congress). China is now the largest creditor to developing countries, and some Members have raised concerns about the opacity of China's lending practices and participation in multilateral debt relief initiatives. Debt Vulnerabilities The debt stock of low- and middle-income countries rose on average 5.6% in 2021 to a total of $9 trillion. According to the International Monetary Fund (IMF) and the World Bank, a majority (60%) of low-income countries are in debt distress, meaning that that there is a risk that a country may be unable to meet its financial obligations without debt restructuring or possibly debt forgiveness. According to the IMF, as of January 31, 2023, nine countries are in debt distress, 28 countries are at high risk and 25 countries are at moderate risk. The IMF also noted that from 2019 to 2020, overall borrowing jumped by 28 percentage points to 256% of GDP, with government borrowing accounting for about half of this increase. Alongside increased borrowing, since the end of 2019, nine countries (Argentina, Belize, Ghana, Ecuador, Lebanon, Sri Lanka, Russia, Suriname, and Zambia) have defaulted on sovereign debt obligations. 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 global financial crisis, and has continued to rise through the COVID-19 pandemic. According to World Bank figures, total external government debt of low- and middle-income countries increased from $1.7 trillion in 2011 to $3.5 trillion in 2021. While the earlier waves of sovereign debt accumulation in the 1970s and 1980s consisted primarily of bank loans and bilateral borrowing from advanced economies and the multilateral development banks, increases since around 2015 in aggregate sovereign debt are largely attributable to China's emergence as a key developing country creditor, and to the rising use of private sector bonds to finance developing country public debt. These trends have raised new challenges in resolving sovereign defaults. China's Lending to Developing Countries China, since 2015, has been the largest creditor to low- income countries (Figure 1), surpassing the Paris Club (a core group of traditional donor governments including the United States and 21 other countries), the IMF, and the World Bank. Unlike the IMF, the World Bank, or the Paris Club, China rarely discloses the amounts or terms of its 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. Figure I. China is the Largest Creditor for Developing Countries Figure is interactive in the HTML version of this In Focus. 2011 2015 2020 China WJapan Germany 3 S rance France fl -4 Germany Russia r ussia U.S. S -l S. Arabia Kuwait 8 7AE S. Korea t0 S Kuwait India /9 Korea S. Arabia WIdia WDu.s. An 19 ak among a l clasified bilateral lenders, based on total guaranteed debt to developing countries. Source: Created by CRS based on World Bank International Debt Statistics 2022 data. Proliferation of Debt Instruments In the early 1990s, private financing to developing countries shifted from private bank loans to government bonds. As a result, the bond market has become a key source of public financing globally. Between 2011 and 2019, sovereign bond financing to low- and middle-income countries tripled (Figure 2).

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Already a HeinOnline Subscriber?

Log In

profiles profiles most