Investors are bracing for debt defaults in emerging markets while Laos and Mongolia are in the line of fire

Concerns about potential sovereign defaults in Asia’s frontier markets are mounting as the Economist Intelligence Unit joins Malayan Banking in warning of risks amid faster inflation and rising borrowing costs.

aos has the highest probability of a default in the next four years, followed by Mongolia, the EIU said in a report, adding that Myanmar also poses a potential risk.

Global bond investors are becoming more cautious amid the risk of an historic cascade of defaults after Sri Lanka and Russia defaulted on debt earlier this year.

Concerns are more acute in frontier economies grappling with rising imports that are squeezing their reserves, compounded by aggressive Federal Reserve rate hikes that are pushing up borrowing costs around the world.

It’s a risk repeated across vulnerable developing countries around the world this year, with Bloomberg Intelligence pointing to particular uncertainty in El Salvador, Ghana, Egypt, Tunisia and Pakistan.

There are now 21 emerging markets with government bonds trading at distressed levels — yields more than 10 percentage points higher than similar-maturity government bonds — which may indicate investors believe default is a real possibility.

That’s more than double what it was at the end of 2021, according to data from a Bloomberg index.

“Our analysis conclusively shows that Laos and Mongolia are most at risk of following Sri Lanka into default in 2022-2026, with the former being of more immediate concern,” EIU said. Despite forecasts for relative stability in Myanmar, “an escalation in domestic political conflict could come without warning and threaten the state’s ability to repay.”

The prospects for Myanmar’s economic growth remain weak as rising inflation, a tight dollar and ongoing domestic conflict pose challenges to the recovery from the pandemic, according to a World Bank report this week. Investors are bracing for debt defaults in emerging markets while Laos and Mongolia are in the line of fire

Fry Electronics Team

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