2023-Public-Sector-Perspectives

Figure 2: Government debt average in foreign and local currency (% total debt) SD CCC+/CCC/CCC- B+/B/B- BB+/BB/BB- BBB+/BBB/BBB- AAA to A- Foreign Currency Local Currency 53 47 39 54 60 73 75 61 46 27 40 25 Source: IMF WEO October 2022, World Bank Debt Statistics, S&P’s data as of 10/2022, Citi Public Sector estimates Already, several emerging market sovereigns with credit ratings in the B/B- to CCC+/CCC- range have lost market access, with yields doubling and CDS spreads sharply widening. Therefore, sovereigns below investment grade and especially those at the lower end of the credit rating scale face greater risks to meet their debt service obligations (given their lack of scope to refinance externally) — and many also face difficulties in adjusting policies in order to contain their financing needs sufficiently to ensure debt sustainability. Figure 3: Sovereign bond Y10 — Yield to maturity 0 5 10 15 20 25 30 35 40 45 50 CCC+/CCC/CCC- B+/B/B- BB+/BB/BB- BBB+/BBB/BBB- A+/A/A- AA+/AA/AA- Min Max Median 4.9 4.6 4.4 5.4 4.3 3.9 8.8 6.0 4.4 12.1 7.8 6.2 38.5 11.9 5.7 44.7 36.4 23.3 Source: Bloomberg Data 11/2022, S&P’s data as of 10/2022. Note reflective of subset of 70 EM countries with commercial debt Citi Perspectives for the Public Sector 67