2023-Public-Sector-Perspectives

While there has been a large number of sovereign defaults since the end of 2019 — Argentina, Belize, Ecuador, Sri Lanka, Chad, Lebanon, Zambia, and Suriname — most sovereign borrowers have continued to meet their debt service obligations. However, as liquidity pressures increase and the cost of financing climbs, in particular for sovereigns with limited fiscal flexibility, solutions to improve debt affordability will be needed. Sovereign external debt levels (measured as a percentage of GDP) are highest at the two ends of the credit rating spectrum as depicted in Figure 4 below: AAA to A- countries (that by definition have more debt carrying capacity) and the CCC range and lower-rated countries, where the nominal debt stock may be relatively modest but represents an outsized burden relative to their economic size and revenue-generating capacity to repay the debt. Notably, the cost of debt service is three to four times higher per dollar borrowed for the lower-rated sovereigns as seen in Figure 5. Figure 4: Global external government debt average (% of GDP) 0 20 40 60 80 100 120 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 AAA to A- BBB+/BBB/BBB- BB+/BB/BB- B+/B/B- CCC+/CCC/CCC- SD Source: IMF October 2022, S&P’s data as of 10/2022 68 Debt-For-Sustainability: Addressing Debt Pressures and Achieving SDG Goals